By DPA,
Paris : To help prop up their banking systems, European Union (EU) leaders have agreed to relax the requirements of the Stability and Growth Pact, which imposes rules on member states regarding their public spending.
French President Nicolas Sarkozy, German Chancellor Angela Merkel, British Prime Minister Gordon Brown and Italian Prime Minister Silvio Berlusconi also called for an international conference of the 14 largest industrial nations to “rebuild the international finance system,” as Sarkozy phrased it.
The Stability and Growth Pact, adopted in 1997, is an agreement by EU members related to their conduct of fiscal policy to facilitate and maintain Economic and Monetary Union of the European Union . It restricts deficit in national budget to three percent of gross domestic product (GDP) and public debt, to a maximum of 60 percent of the GDP.
Also attending Saturday’s mini-summit in Paris were European Commission head Jose Manuel Barroso, European Central Bank (ECB) president Jean-Claude Trichet and the head of the Eurogroup, Luxembourg Prime Minister Jean-Claude Juncker.
The meeting was called by Sarkozy, current rotating president of the EU, to formulate a common European position to surmount the finance crisis.
A statement released after the talks said, “The application of the Stability and Growth Pact should also reflect the current exceptional circumstances.”
The leaders at the meeting also called for an international conference on the financial crisis that would include the G8 countries and large developing economies such as China, India, Brazil and South Africa.
“We will work with all major economies to rebuild the international banking system,” Berlusconi told journalists when asked about the purpose of the meeting of the so-called G14.
Sarkozy said the aim of the international conference would be to construct “the foundation of an entrepreneurial capitalism instead of a speculative capitalism. We want to build the beginning of a new financial world as they did in Bretton Woods.”
The 1944 international meeting in Bretton Woods established the rules for commercial and financial relations among the world’s major industrial states.
The EU leaders also agreed to work to change European accounting rules, increase regulation of credit rating agencies and hedge funds and alter the way executives are rewarded, in order to prevent the payment of “golden handshakes” – that is, exorbitant severance payments – to executives who have created risk for their companies.
“Executives who failed must be penalized,” Sarkozy said.
The summit was preceded by a controversy over a proposal to create a 300-billion-euro ($413 billion) fund to bail out struggling financial insitutions, similar to the plan passed by the US House of Representatives and signed into law by President George W. Bush late Friday.
Reportedly supported by the Dutch and the French, the idea was summarily rejected by Germany and Britain, and was not on the summit’s agenda.
Decisions taken at Saturday’s mini-summit are to be further elaborated at Tuesday’s meeting of EU finance ministers and at the Oct 15-16 EU summit in Brussels.