By Andrew McCathie, DPA,
Brussels : After leading the way in responding to the world financial crisis, Europe could be facing headwinds as it attempts to press on with a rapid and comprehensive overhaul of the global finance sector.
Gone are the high-minded calls for sweeping changes to the international financial system as proposed only a few weeks ago by French President Nicolas Sarkozy when panic selling engulfed share markets and sent shock waves across the world economy.
Now, in the face of resistance from within their own ranks and from the Group of Eight industrial nations to greater market regulations, the Europeans will be travelling to Washington next week with a far more modest set of proposals.
Speaking at the end of his address in Brussels, Sarkozy sought to reassure sceptics about what Europe hoped to achieve at next week’s meeting in Washington of the world’s 20 leading economies.
“We don’t want too much regulation,” the French President said.
France currently holds the European Union (EU)’s rotating presidency.
This comes after EU member states such as Sweden warned Sarkozy that he could be heading in the wrong way.
“We are very concerned that we are choosing the wrong road,” said Swedish Prime Minister Fredrik Reinfeldt who has emerged as a leading European sceptic of tougher financial sector regulation.
Perhaps more importantly, Group of Eight nations including Canada and the US have also been raising concerns about the economic direction involved in pursuing a rigorous approach to market regulation.
Australia, which is a member of the G-20 group also appears reluctant to sign off on sweeping changes to the financial sector that could produce much tighter market supervision.
With this in mind, Sarkozy will present in Washington a set of EU proposals that are a scaled down version of the ones that were on the table only days ago.
The latest plans essentially call for reinvigorating the International Monetary Fund (IMF) while reasserting the powers of national financial supervisory authorities to deal with financial fire storms similar to the one that recently swept through markets.
With the chairman of the Washington meeting, US President George W. Bush, ending is tenure in office in a matter of months, the Europeans have stepped into a power vacuum that has emerged in the US.
But president-elect Barack Obama has spelt out all through his election campaign his commitment to reform financial markets.
As the leader of the world’s biggest economy, Obama’s ideas are likely to be included in the reform process.
But then, the economic and financial environment which has been driving the debate about reforming the finance sector has also changed in recent weeks.
Apart from an element of calm returning to global share markets, governments have produced rescue packages to help crisis-hit financial houses to limp through the current upheaval as well drawing up economic stimulus measures.
In addition, there have been signs that frozen credit markets, which were a major factor in triggering the crisis, have started to thaw.
At the same time, central banks around the world have launched concerted moves to shore up economic and financial confidence by pumping liquidity into markets and slashing interest rates.
This week Europe’s two leading central banks – the European Central Bank (ECB) and the Bank of England (BoE) – joined the new wave of rate cuts around the globe with hefty reductions in the cost of money.
The BoE’s dramatic 150 basis points cut brought rates in the EU’s second biggest economy to their lowest level in more than half a century with analysts expecting the London-based bank and the ECB to continue trimming rates in the coming months.
With a sharp global economic contraction underway, the Europeans are nevertheless determined to demonstrate that they are on the case when it comes to reforming the finance sector.
“We have to act quickly,” said Sarkozy Friday.
This means convincing the other government leaders in Washington to agree that reforming the financial sector needs to be carried out with a sense of urgency.