China, EU see severe economic shock

By Gabriela Baczynska and Gernot Heller

BEIJING (Reuters) - Even as markets tumbled around them, Asian and European leaders expressed confidence on Friday that they could overcome the deepest global financial crisis in more than 70 years.

Opening a two-day Asia-Europe Meeting (ASEM) of 27 EU member states and 16 Asian countries, President Hu Jintao urged a rapid response to the turmoil, which he said increased the challenges confronting the world's fourth-largest economy.

"For China's economy to maintain a healthy state is itself an important contribution to global financial stability and economic development," Hu said.

Chinese Premier Wen Jiabao said the crisis was generating "a severe shock to global economic growth."

The European Union wants Asia to play a full part at a crisis summit that U.S. President George W. Bush is convening next month to help shape global financial reforms and tackle the economic imbalances at the root of the crisis.

German Chancellor Angela Merkel said reforms should focus on more transparency in markets, new compensation schemes for financial institutions, stricter supervision and closer international cooperation.

"This is about no less and no more than the creation of a new financial constitution," she said.

Merkel said it was too early to say how long the crisis would last. As if to reinforce the point, financial markets went into fresh convulsions on Friday.

European stocks shed 9 percent after shares in Japan slumped nearly 10 percent. The yen rose at dizzying speed, while the pound, the euro and oil prices sank like a stone.

ENTERING THE 21ST CENTURY

President Nicolas Sarkozy of France, which currently holds the rotating EU presidency, said he hoped Asia and Europe could forge a common front at next month's talks in Washington.

"Europe would like Asia to support our efforts, and we would like to make sure that on November 15 we can face the world together and say that the causes of this unprecedented crisis will never be allowed to happen again.

"If we manage to make sure that this is done, maybe this crisis will go down in history as the day on which we managed to enter the 21st century and start resolving this crisis," he said.

Welcoming Bush's plan for a summit, ASEM leaders committed themselves to comprehensive reform of the international monetary and financial systems. Better supervision and regulation of all financial actors was a particular priority.

"Leaders believed that authorities of all countries should demonstrate vision and resolution and take firm, decisive and effective measures in a responsible and timely manner to rise to the challenge of the financial crisis," said the final draft communique, which was obtained by Reuters.