Europe's "Big 4" want clarity on bank risks

LONDON (Reuters) - Leaders of Europe’s big four economies called on Tuesday for closer economic cooperation and for banks to be more open about risk, warning more regulation would be needed if financial institutions did not comply.

The leaders of Britain, France, Germany, Italy and the European Commission put on a show of unity to reassure nervous markets and shore up confidence as the global economy sours.

But their joint communique released after their London meeting had few measures to measures to calm jittery markets.

“The global economy has experienced a period of stable and sustained growth. However, recent financial turbulence has increased the risks for 2008,” the joint statement said.

They called for better information on credit ratings and for better understanding -- and reporting of -- banks’ exposure to risk following a global credit crisis sparked by dodgy U.S. mortgage debt packaged into complex financial products.

While eager to show they can tackle a global economic slowdown, governments’ scope for action is limited.

Rising energy and food prices mean the European Central Bank and Bank of England will find it hard to cut interest rates as aggressively as the U.S. Federal Reserve.

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Nor is a huge fiscal boost like the $150 billion (75.4 billion pound) stimulus package approved on Tuesday in the United States likely to find much favour in Europe’s capitals where public finances are already tight.

But Germany’s Angela Merkel did warn tighter regulation could result if institutions did not improve transparency.

“The first step is the appeal to market participants to show more transparency and the important message is: if that doesn’t happen, then regulation will be needed,” she told reporters after talks with Italy’s Romano Prodi, France’s Nicolas Sarkozy and European Commission President Jose Manuel Barroso in Downing Street in a meeting called by UK Prime Minister Gordon Brown.


Keen to stress an impending economic slowdown is a global problem and to relaunch himself on the European stage, Brown called the meeting weeks ago to discuss the credit crunch. But the stakes have got much higher since.

Consumer confidence in the global economy is crumbling and financial institutions, many of whom took massive hits from exposure to risky U.S. home loans, are again under scrutiny after a trading scandal at French bank Societe Generale.

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The International Monetary Fund (IMF) reinforced the gravity of the situation on Tuesday when it cut its forecast for world growth this year and warned that economic activity could slow even further.

The leaders want the IMF to take a greater role in watching over the stability of the world financial system.

“The recent market turmoil has ... highlighted the need for reform to ensure that global institutions can meet the challenges of the 21st century,” they said in their statement.

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“We need a better early warning system for the global economy.”

Tuesday’s summit did not set a common European line for next week’s G7 meeting in Tokyo. Wrangling over exchange rates will be left to the finance ministers and central bankers there.

But all the leaders have an interest in looking as if they are taking action. Brown’s government is still paying the political price for a bank run on mortgage lender Northern Rock.

Sarkozy faces a headache from SocGen. Merkel is nursing heavy losses for her Christian Democrats in the state of Hesse and Prodi’s government collapsed last week.

Additional reporting by Kate Kelland, Giselda Vagnoni, Adrian Croft and Sumeet Desai in London, Brian Love in Paris, Matthias Sobolewski, Erik Kirschbaum in Berlin, and Jan Strupczewski in Brussels. Editing by Jodie Ginsberg, David Christian-Edwards