By Dipankar De Sarkar, IANS
London : Following up swiftly on last week’s economic discussions at Davos, Europe’s most powerful leaders have urged financial institutions to improve their transparency in order to avoid repeated global financial turmoil.
If they failed to do so, the leaders warned Tuesday that they would not hesitate to impose regulation and tagged it with a call for the International Monetary Fund (IMF) to take on a “surveillance” role that could act as an early-warning system for future shocks.
“We need a better early warning system for the global economy,” British Prime Minister Gordon Brown said.
“We want the prompt and full disclosure of the write-offs that are now to take place as soon as possible. I think these are the immediate things people want to be done,” he added.
Brown played host in Downing Street to President Nikolas Sarkozy of France, Angela Merkel, the German chancellor, Romano Prodi, the Italian caretaker prime minister, and José Manuel Barroso, the head of the European Union Commission.
Tuesday’s discussions are to be followed at a meeting of G8 finance ministers in February, a EU council meeting in March and the G8 summit in Japan in July.
Brown, whose stint as chancellor (finance minister) ending last year is thought to be among the best in post-War Britain, said credit rating agencies needed to increase investors’ understanding of complex products.
The European call comes in the midst of a global financial downturn and amid fears of a recession triggered by a crisis in the US sub-prime housing mortgage market.
The crisis, which ballooned out of control into secondary credit markets, was blamed by a number of leaders at the Davos World Economic Forum, including Indian Finance Minister P. Chidamabaram, on an absence of effective financial markets regulation in the US.
The meeting follows a series of crises in the global banking sector, with Britain’s Northern Rock bank falling an early victim to the sub-prime crisis.
The French bank Societe Generale reported losses of about 3.7 billion pounds (about $7 billion) last week due to rogue trading – after writing off 1.5 billion pounds due to exposure to the sub-prime crisis.
Although the full extent of the sub-prime crisis is yet to be known, Barclays Capital reported Friday that banks may need to raise as much as 77 billion pounds to weather the credit crisis.
“We want the kind of capitalism that promotes entrepreneurship not speculation,” said Sarkozy Tuesday.
“We can’t let this lack of transparency jeopardise growth.”
The leaders also warned against any move towards protectionism.
The EU’s Barroso said: “The fundamentals of the EU economy are sound. We have the lowest unemployment rate for 25 years. We have a positive current account balance. The euro is strong. We remain on the growth path.
“What is needed now is action that is both targeted and proportionate. We must not be tempted into protectionism, or futile attempts to stem financial globalisation, or an artificial stimulus of the economy.”
“Yes, there is turbulence in the financial markets,” he said, but “there is no need to rush for the lifeboats.”