European Union leaders and finance ministers meeting in Berlin have agreed a plan aimed at driving forward an overhaul of the world financial system and strengthening market regulation.
European leaders put on a united front
German Chancellor Angela Merkel was instrumental in engineering a united European response to financial market reform at the meeting of European Union leaders in Berlin.
At the meeting, it was agreed to improve the regulation of financial markets, bolster the international monetary fund (IMF) and get tough with tax havens.
Merkel said it was crucial to reestablish trust and said that this could only be brought about "if the people in our countries feel that we are undertaking a joint effort and have understood that we must learn lessons from this crisis."
The chancellor said that it was not permissible to have "blank spots" where regulations do not apply. One of Merkel's coups was to incorporate a demand for the supervision of hedge funds into the European summary statement, despite initial resistance from Britain, where many hedge funds are based.
Another was to draw up a list of countries and regions which "refuse to cooperate internationally" with a view to taking action against tax havens.
The draft statement said the leaders agreed "all financial markets, products and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile."
Merkel's proposal to introduce a global charter for sustainable economic activity was also incorporated into the joint European demands.
Bigger role for International Monetary Fund
The IMF could see its funding doubled
The European leaders also put forward a plan for adding an extra 195 billion euros ($250 billion) -- double the current level of funding -- to the International Monetary Fund (IMF) so it can better help to prevent future financial crises.
British Prime Minister Gordon Brown said a bolstered IMF would also be able to help central and eastern European countries embroiled in a growing economic crisis as western banks pull out credit.
The EU leaders also stressed the need for the G20 to implement "swiftly and completely" the 47-point action plan agreed to at the group's last meeting of government heads in November.
The meeting on Sunday, Feb. 22 was attended by the leaders of France, Britain, Spain, Italy, the Netherlands, Luxembourg and the Czech Republic, the holder of the rotating EU presidency. It was called to coordinate the bloc's position ahead of the April summit in London of the group of 20 major economic powers.
The results will be discussed by all 27 European Union members at summits in March.
Profound changes after global turmoil
Major changes, not Band-Aid fixes, are necessary, Sarkozy said
French President Nicolas Sarkozy said deep changes were required to the way the world conducts business.
"The violence of the crisis, its depth, call for really profound changes," he said ahead of the meeting. "We have to start capitalism again from scratch, make it more moral... that is why I want to see a real response."
But Sunday's meeting comes in the wake of another week of global market turmoil, which has underscored mounting concerns about the deepening sense of crisis surrounding the financial systems in central and eastern Europe as well as parts of the 16-member euro zone, notably Ireland and Greece.
At one point last week the euro hit a three-month low against the dollar with share markets slumping sharply as the euro zone confronts its first major crisis since it was formed about a decade ago.
"There has not been a worldwide recession of the scale we are seeing today for several decades," the chairman's statement said.
Light on the horizon
National rescue efforts could help economies recover
But the leaders attending the Sunday summit also expressed optimism about the European economic outlook as the year unfolds following the adoption of national stimulus packages.
"As these measures take effect over the coming months they will tangibly support growth," the statement said.
With this in mind, the leaders have also called for efforts aimed at helping to thaw credit markets which seized up following the US mortgage market meltdown more than year ago and have been a key factor in driving the global economy into a downturn.
In the meantime, the leaders have proposed creating "effective early warning mechanisms" to face up to financial firestorms in the future.
These would be coordinated by a strengthened International Monetary Fund (IMF) and Financial Stability Forum (FSF). The FSF was established a decade ago to boost cooperation between supervisory bodies.
As part of the efforts for enhancing coordination between national supervisory authorities, the EU leaders proposed doubling state funds for the IMF with the World Bank and the European Bank for Reconstruction and Development broadening their lending practices to shore up European states facing financial pressure.
The European leaders also want to ensure greater financial market transparency and accountability by controlling bodies, such as international rating agencies and hedge funds, which at their peak before the global credit crunch set in represented an industry worth more than $2 trillion.
Liechtenstein is one of the tax havens that may feel the heat
The EU leaders also want to see measures to prevent "excessive risk taking" through controls on bonus payments and a crackdown on tax havens as well as so-called "uncooperative jurisdictions" such as Lichtenstein, Andorra and Monaco.
In addition, the Berlin meeting warned about the economic threat posed by protectionism as nations attempt to shield their economies from recession.
"At the London summit leaders should send a powerful message to this effect," said the chairman's summary.
The chairman's summary also called for moves to monitor all major cross-border financial institutions through the creation of new financial market watchdogs, which will called a college of supervisors.