Gordon Brown Buoyant PM moves to rewrite rules of globalised economy
* Ian Traynor, Nicholas Watt and David Gow in Brussels
* Thursday October 16 2008
Gordon Brown built on his best week as prime minister last night by endeavouring to set the global agenda on the international banking crisis and to inoculate the financial system against a relapse.
The prime minister surprised an EU summit by unveiling proposals for a major summit which he said should take place within weeks to rewrite the rulebook for the world economy.
Stepping up his campaign for a new “international financial architecture” that would banish the threat of renewed meltdown, Brown sought to rally a summit of 27 European leaders behind his scheme, also supported by Nicolas Sarkozy, French president and current president of the European council.
Sarkozy said the global summit should take place in New York. Brown said it should take place next month or in December and claimed there was widespread support for the conference.
“There is now general agreement on a meeting with an agenda for far-reaching reform,” said Brown after talking to George Bush, his European peers, and the leaders of China, Brazil, and Australia in recent days.
Fresh from a triumphant summit of 16 European leaders in Paris on Sunday which adopted the “Brown plan” as the model for salvaging the European banking sector from collapse and kickstarting the paralysed markets, the prime minister yesterday lobbied the other 11 countries of the EU to follow his lead and announced that it was already time to move on to “stage two” in tackling the global financial and worsening economic crisis.
“Stage one has been stabilising the financial system. We also have to move to stage two,” said Brown, who unusually was the first leader to arrive for last night’s summit and spent all day yesterday locked in one-on-one meetings with European commission officials and Scandinavian and central European government chiefs.
Brown sprung a seven-page paper on last night’s summit, outlining his remedies for the global crisis. In doing so, he risked the accusation that he was hijacking the summit agenda at the last minute and stealing the limelight from Sarkozy. British officials said the new proposals had been shared with the French in advance.
The proposals are designed to set in motion the most far reaching reforms to world financial institutions since the Bretton Woods meeting of 1944 which led to the creation of the IMF and the World Bank. The conference to rewrite the global financial rules would also agree on a new world trade deal, following the collapse of negotiations in July, in order to remove the dangers of stronger protectionism as the world moves into recession.
- an early-warning system for the world economy to ensure that problems are anticipated earlier;
- a framework to ensure crises are dealt with better as they arise;
- cross-border colleges of supervisors to monitor the world’s top 30 companies and financial institutions that trade across borders.
“It is a response to unique times, unprecedented circumstances and the need to think in unconventional ways about what is the right thing to do,” the prime minister said.
“I want to see a timetable for agreeing these proposals over the next few weeks and months.”
The group of international regulators for the world’s top 30 banks would seek to prevent a repeat of the current financial meltdown, while Brown’s vision of a new Bretton Woods handed the key role of investigating and supervising the impact of the financial sector on the real economy.
It would work hand in glove with the G7’s current financial stability forum (FSF), comprising treasury officials, central bankers and regulators, to deliver early warnings of systemic risk to economic and financial stability and propose measures to combat it.
The FSF, based in Basel, Switzerland would be expanded to include members from important emerging economies such as China, India, Brazil, Russia and South Africa.
The prime minister demanded strict regulation of all financial market players, including hedge funds and others operating in the “shadow” banking system that have helped provoke the current crisis with complex derivative products.
The French proposals for last night’s summit included action to curb executive excess, saying that the pay and bonuses of company bosses should reflect “their real performance” and the success of their businesses. Earnings should not lead to “excessive risk-taking or extreme concentration on short-term objectives.”
Sarkozy told the summit that no financial institution should escape regulation and supervision. “We must also work to eliminate the grey areas that undermine our efforts at coordination, in this case the offshore centres,” he said.
Brown hopes that agreement among the EU 27 last night would allow the four EU members of the G8 – Britain, France, Germany and Italy – to present a united front at the proposed world summit which could include the US president-elect as it would take place after the November 4 presidential election.
* guardian.co.uk @ Guardian News and Media Limited 2008