G20 leaders to struggle to reshape global economy

By Anna Willard and Todd Benson - Analysis

SAO PAULO (Reuters) - World leaders will struggle to overcome differences at next weekend's emergency summit on how to reshape the global financial system and give a greater voice to developing nations.

Finance officials from the G20 group of developed and biggest emerging economies agreed on Sunday to "urgently take forward" the proposals backed by their leaders at the Washington summit, which is also expected to discuss measures to stave off a global recession.

The G20 meeting in Brazil's business capital also exposed opposing views on how to regulate financial markets and the role institutions like the International Monetary Fund should play in overseeing a new global economic order.

A showdown appears to be brewing about whether broader groupings like the G20 should supplant the elite, rich-country G7 as the main forum governing the world economy.

France, which holds the rotating European Union presidency, is leading a drive for tough new regulations and oversight in financial markets.

Many countries want to beef up the IMF and some want to give it a regulatory surveillance role.

The United States, Britain, Canada and Australia are worried that too much regulation could restrain a free-market system and dim the prospects for economic growth.

"We see friction between Anglo-Saxon capitalism on the one hand and the European-style capitalism on the other hand," French Economy Minister Christine Lagarde told reporters on Sunday on the sidelines of the G20 finance officials meeting in Sao Paulo.

"On the Anglo-Saxon side the balance is more toward letting the market rules play out and the European side probably has a big concern about regulation."

But she warned against simplifying the debate on the complex mix of interests on the table in Washington.

Brazilian President Luiz Inacio Lula da Silva, a critic of the economic order, told G20 officials on Saturday the global financial system "collapsed like a house of cards" because of the "dogmatic faith in non-intervention in markets."

Lagarde stressed that it was important to take swift decisions on new regulation because the crisis had given momentum to efforts at reform.

U.S. Treasury Undersecretary for International Affairs David McCormick said there had been "much more convergence, agreement among many things" on the need for reform.

He, like others, played down expectations for any concrete action from the upcoming Washington summit, saying it would "lay the groundwork for making important regulatory changes and regulatory regimes more effective."

In a communique, the G20 finance officials agreed on the need to improve oversight of markets, but the wording of the text was vague enough to leave plenty of room for haggling.