G20 leaders to struggle to reshape global economy

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.

Still, IMF Managing Director Dominique Strauss-Kahn was hopeful that differences could be overcome.

"I think everybody has in mind that we really need the world leadership to take action," he said.

"There may be some differences in proposals ... The Europeans are arguing very strongly in favor of new regulation and supervision. Some others are more reluctant. Other topics you also have some different positions, but that's always the case at the beginning of a meeting."

RESHAPING THE SYSTEM

Another issue on which it may be hard to reach a consensus is giving a greater say to emerging market economies like Brazil and China in how the global economy is managed.

Brazil's Lula used the meetings in Sao Paulo to step up Brazil's campaign for a complete overhaul of the world's financial institutions.

In a rare show of unity, the so-called BRIC club of fast-growing emerging economies -- Brazil, Russia, India and China -- issued a joint statement on Friday calling for a heftier role in shaping the new global financial architecture.

Brazil also called for the G20 to replace the rich-nation G7 as the main forum to decide on global economic affairs, a cause that was backed by many developing countries and the IMF's Strauss-Kahn.

"The G7 can no longer be a little club on its own," South African Finance Minister Trevor Manuel said on Sunday.

But in a sign of the resistance that attempts to share power more broadly will face, Bank of Canada Governor Mark Carney made a point of saying the G7 remains effective.

The political transition in the United States also poses another major hurdle to quick changes. President George W. Bush will host the Washington summit on November 15, but he will be replaced on January 20 by President-elect Barack Obama.

McCormick, the U.S. Treasury official, said the Bush administration was keeping Obama "up to speed" on what would be discussed at the meeting.

Obama will not attend the summit, an aide said on Monday, leaving world leaders in the difficult situation of hammering out a deal for significant change with an unpopular U.S. president who is on his way out of office.

(Editing by William Schomberg and Dan Grebler)