European leaders vow stricter oversight of markets

BERLIN,  (Reuters) – European leaders agreed yesterday  to push for a global crackdown on tax havens and strict new  regulation of hedge funds as part of a sweeping overhaul of  financial rules designed to prevent future market meltdowns.

German Chancellor Angela Merkel invited fellow European  Union leaders to a one-day summit in Berlin to prepare a common  stance ahead of a broader meeting in London on April 2 of the  G20 — a group of rich nations and major emerging economies  charged with reforming global financial rules.

Angela Merkel
Angela Merkel

They backed a doubling of funds for the International  Monetary Fund, which has spent billions of dollars in recent  months shoring up economies in eastern Europe and elsewhere.

The leaders also agreed to strengthen the supervisory role  of the Financial Stability Forum, a group set up by rich  countries after the Asian financial crisis of the 1990s, and  enlarge it to include emerging economies.

Since a first G20 summit on reforming global finance was  held in Washington in November, recessions in Europe and the  United States have deepened, forcing governments to push through  massive stimulus packages that have raised fears of a return to  protectionist policies seen in the 1930s.

“We’re dealing with an extraordinary international crisis  the likes of which we have not seen for decades, both as regards  financial markets and the global economy,” Merkel told reporters  at the end of the summit.

“We believe that such an international crisis can only be  solved jointly,” she said, sitting alongside leaders from  Britain, France, Italy, Spain, the Netherlands, Czech Republic  and Luxembourg, as well as the head of the European Commission.

European nations will need to win the backing of the new  U.S. administration of President Barack Obama, as well as other  big economies like China and Russia at the London summit in  April if their plans are to see the light of day.

A summary of their conclusions issued at the end of the  meeting voiced support for supervision of all financial markets,  in language slightly stronger than pledges made in Washington.

“We have today underscored once again our conviction that  all financial markets, products and participants must be subject  to appropriate oversight or regulation, without exception and  regardless of their country of domicile,” the statement read.

“This is especially true for those private pools of capital,  including hedge funds, that may present a systemic risk.”

The statement also said a list of uncooperative  jurisdictions, or tax havens, should be drawn up and a “toolbox  of sanctions” be devised as soon as possible.

Germany has led a drive to crack down on countries like  Liechtenstein and Switzerland, following a tax evasion scandal  last year that ensnared prominent Germans.

The Berlin meeting took place after a week of tit-for-tat  accusations of protectionism between European nations, with some  of France’s partners objecting to its plans to offer 6 billion  euros ($7.6 billion) in state loans to domestic carmakers.

In the final statement, the leaders commit to implementing  stimulus measures and financial rescue plans in a manner that  “limits distortions to competition to an absolute minimum”.

New tensions within the single currency bloc and the  financial woes of European Union members to the east had  threatened to overshadow the meeting in the German capital.

Ahead of the gathering, the IMF threw its weight behind the  idea of a common European bond to alleviate pressure on euro  states such as Ireland and Greece that are being forced to pay  hefty premiums over stronger bloc members to finance their debt.

Germany, Europe’s benchmark issuer of debt, has rejected the  idea of a euro-zone bond but the idea seems to be gaining  supporters within the bloc who are worried about a sovereign  debt crisis spreading through the bloc.

Italian Prime Minister Silvio Berlusconi told the news  conference the leaders had not discussed this issue, but that it  would be left for their finance ministers to explore.

European Commission President Jose Manuel Barroso and  Luxembourg Prime Minister Jean-Claude Juncker, who is also the  head of the Eurogroup forum o euro-zone finance ministers, tried  to play down fears that members of the 10-year-old currency bloc  were in trouble.

“I don’t see the risk of a payment default by a member of  the euro zone,” he said.

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