BRUSSELS (Reuters) - European Union nations are set on Wednesday to back calls for a root-and-branch overhaul of the world’s financial structures in a bid to ensure no repeat of the worst credit crisis since the 1930s Great Depression.
EU leaders meet in Brussels just days after finally breaking a free-fall in global markets with a concerted 2.2-trillion-euro ($3,023 billion) rescue of European banking giants swept up in the U.S. sub-prime debacle.
Those measures, followed on Tuesday by a similar U.S. move to take $250 billion worth of stakes in its banks, have augured an incursion of the state in the West’s once-freewheeling money centers that was unthinkable only weeks ago.
Now leaders including France’s conservative Nicolas Sarkozy and Britain’s more left-leaning Gordon Brown argue the turmoil shows the world’s post-World War Two financial architecture is not fit to task, with others advocating new rules on everything from hedge funds to executive pay-outs.
“We see light at the end of the tunnel but we are not there yet,” European Commission President Jose Manuel Barroso told a news conference previewing two days of talks also due to cover ties with Russia and EU plans to tackle climate change.
“Once we have put financial markets back on their feet, we must ensure that in the future they function properly for the benefit of citizens and businesses, rather than themselves.”
As current EU President, Sarkozy will seek the backing of the other 26 states to hold an international conference as early as next month on reforming the world financial order that was put in place by the 1944 Bretton Woods conference.
Brown has seen his domestic opinion poll showing galvanized by the crisis and his government’s rescue efforts, and will also come to Brussels as a vocal advocate of a “new Bretton Woods.”
While the summit will only mark the start of a far-reaching debate on the fate of bodies as the World Bank and International Monetary Fund, it is due to give the Commission the green light to come up with regulation across the financial sector.
That should entail a rethink of supervisory rules on markets, banks, mortgage firms, hedge funds and private equity, Barroso said. Other reforms in the pipeline range from higher guarantees for bank deposits to clamp-downs on executive pay.
Britain and the euro zone majors such as France, Germany, Italy and the Netherlands who coordinated the bank bail-outs last weekend will seek the backing of other EU members for their action, but can expect some dissenting voices.
The Czech government — due to take over the EU presidency in January — accused its EU partners of writing blank checks to their banks in response to the financial crisis and said the actions taken so far had made euro entry less attractive.
“If individual governments declare they will do everything to avoid the failure of any of their institutions, they implicitly say that it is of course at the expense of the Stability and Growth Pact,” Prime Minister Mirek Topolanek said in Prague of rules limiting national budget deficits.
The shadow of imminent recession will also loom over the talks, with Europe’s leading employers group announcing a cut in its 2009 growth forecast for the euro zone, and a top labor body warning of hard times ahead.
“(We see) the piling up of unsold cars in factory car parks, the problems in the construction industry, which is grinding to a halt in terms of new projects, the problems of spending in the shops,” said John Monks of the European Trade Union Confederation, urging a cut in European interest rates.
Aside from the financial crisis, leaders will discuss issues normally weighty enough to dominate the meeting themselves.
At stake is an EU goal of leading global efforts to tackle climate change by agreeing in December a plan to cut greenhouse gas emissions, save energy and boost renewable sources — but which industry and some governments fear could be too costly.
The future of a stalled partnership pact with Russia, the bloc’s main energy supplier, will come up after Moscow pulled its troops out of buffer zones around the rebel Georgian regions of South Ossetia and Abkhazia following August’s conflict.
Irish Prime Minister Brian Cowen is also due to explain to fellow leaders why his country voted “No” to the Lisbon Treaty this year, throwing into doubt the future of institutional reforms which supporters argue the EU desperately needs.
Additional reporting by Jan Lopatka in Prague, David Brunnstrom and Huw Jones in Brussels