BRUSSELS (Reuters) - Europe won backing from the United States, Russia and Japan on Wednesday for a summit on urgent reforms to the world financial order to help prevent a repeat of the worst credit crisis since the Great Depression.
But despite the apparent willingness of authorities to take further action, markets slumped as fears of recession took hold and wiped out optimism this week that massive state rescues for Western banks had seen off the worse of the lending crunch.
France, Germany and Britain called for leaders of the Group of Eight (G8) industrialised countries to gather next month with the heads of emerging economies to look at a radical overhaul of the world’s 60-year-old financial architecture.
“A new form of capitalism is needed, based on values which put finance at the service of business and citizens, and not vice versa,” French President Nicolas Sarkozy told other EU leaders at the start of a two-day summit in Brussels.
“The system must be completely overhauled, an overhaul that must be global,” Sarkozy told other EU leaders, according to a text of his speech distributed to reporters.
Prime Minister Gordon Brown joined his call for a summit and urged a rebuilding of the International Monetary Fund (IMF) as the keystone of global market regulation. Germany also backed the idea and Italy insisted the reforms must be bold.
“Today the dollar is the currency of Bretton Woods, but now it could be that there will be other combinations. The debate on foreign exchange is being reopened,” Economy Minister Giulio Tremonti said.
Sarkozy said the meeting to review of the institutions such as the IMF and World Bank brought into being by the 1944 Bretton Woods conference should ideally take place in New York.
In a brief statement released in Washington, G8 partners did not go into specifics about possible reforms but said a meeting should be held “at an appropriate time in the near future.” Sarkozy said he wanted the summit to be held in November.
The G8 comprises the United States, Japan, Canada, Russia, Britain, France, Germany and Italy. Brown said he also expected key emerging nations such as China, India, Brazil and South Africa to take part.
Sarkozy said the 27 EU leaders in Brussels unanimously endorsed a concerted 2.2-trillion euro (1.7 trillion pounds) rescue plan for banks agreed in Paris on Sunday by the 15 countries that share the euro single currency.
But as jobless figures in Britain soared at a rate not seen since the slump of the early 1990s, the mood was far from triumphant as others warned that hard times lay ahead.
“We are not at the end of the crisis. We are still living in dangerous times,” Luxembourg Prime Minister and euro zone chairman Jean-Claude Juncker said on arrival.
Governments will in coming weeks now have to work to bridge differences on the details of the revamp all say is needed.
Sarkozy called for a clampdown on speculative hedge funds and the offshore financial centres that he called “grey zones.” Yet Britain, with links to such centres, has in the past blocked attempts within the EU to target their activities.
Brown said the key role in supervision should go to the International Monetary Fund and the Financial Stability Forum (FSF), which have no binding powers of enforcement.
The summit is also due to give the executive European Commission a green light to come up with regulation of some areas of the financial sector. Commission President Jose Manuel Barroso called for a rethink of supervisory rules on markets, banks, hedge funds and private equity.
But a paper that Brown presented to summit leaders, seen by Reuters, omitted any mention of such European regulation, concentrating on a bigger oversight role for the IMF and FSF.
“Europe is indispensable for any global response. But an EU response alone is not enough,” said Barroso, urging Europe and the United States to work “hand in hand.”
The Commission proposed higher minimum guarantees for bank deposits of 100,000 euros by 2009 and is due to produce guidelines on executive pay practices, blamed by some for encouraging a reckless pursuit of profits.
EU accounting regulators also voted to ease an accounting rule which EU leaders said exacerbated the impact of the credit crunch on the continent’s banks.
Critics blame the so-called fair value rule for forcing banks to take unnecessarily big writedowns after market prices on assets such as subprime securities fell.
Aside from the financial crisis, leaders discussed EU efforts to tackle climate change by agreeing in December a plan to cut greenhouse gas emissions, save energy and boost renewable sources — which industry fears could be too costly.
“The political will was very clear, everyone wants to get an agreement,” Finnish Prime Minister Matti Vanhanen said.
EU leaders will discuss ties with Russia on Thursday but officials doubted they would come to any firm decision on whether to restart talks with Moscow on a partnership pact that were frozen after the Georgia conflict in August.
Moscow pulled its troops out of buffer zones around the rebel Georgian regions of South Ossetia and Abkhazia last week but some EU nations including Britain and ex-communist states want to see more evidence of Russian compliance.
Additional reporting by Adrian Croft, David Brunnstrom, Huw Jones, Marcin Grajewski, Jan Strupczewski, Francesco Guarascio, Ingrid Melander; Writing by Mark John and Paul Taylor; Editing by Alison Williams