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A photo montage showing man rolling up his sleeves in front of the EU flag
EU leaders say it's time to overhaul the financial systemImage: picture-alliance/dpa/DW-Montage

Reform framework

September 21, 2009

EU leaders have been trying to frame a common position on financial reform ahead of this week's G-20 talks in Pittsburgh. The bloc wants to curb bankers' bonuses and pull plug on state aid once the economy stabilizes.


If the European Union is still divided over how to reform capitalism, its leaders are determined to present a united front.

The EU wants a leading role at next week's gathering of finance ministers in Pittsburgh, from the world's 20 leading economies.

At talks in Brussels last week, British Prime Minister Gordon Brown called for the G-20 to be made permanent.

He said the G-20 should take a leading role in a new, global system of economic governance aimed at avoiding the boom-and-bust cycles of the past and promoting sustainable growth and jobs.

"I will not accept a return to the old days, in the way that some institutions are now wanting to move," Brown said.

"We will agree at Pittsburgh, in my view, international guidelines - which is an insurance policy for every country."

German Chancellor Angela Merkel, left, shakes hands with Swedish Prime Minister Fredrik Reinfeldt
Merkel and Reinfeldt want the EU's 27 members to speak with one coordinated voiceImage: AP

"If they are prepared to act as an individual country, then they have some protection from the world community, and they will not be outbid by unregulated tax havens or other areas persisting with the bad practices of the past."

But does that vision amount to more than peer group pressure? And will promises alone, from individual countries, to get tough on the banking sector, be enough to bring about lasting change?

Prioritizing reform

The ongoing dialog on financial reform has been marked by deep ideological and technical disagreements over how tight regulation should be.

As the debate moves forward, cracks have also emerged between the EU and US over which parts of the financial sector need regulating first.

US President Barack Obama has outlined plans to tackle capital requirement rules, but many European leaders see limiting bankers' bonuses as more important. The EU also wants to slash payments if investments fail to deliver, and to force companies to control high-risk speculation.

But the Centre for European Policy Studies' Karel Lanoo, rejects the idea the US and Europe are dangerously divided.

"We are more or less in line with each other. So we are responding. There are initiatives coming out of the policy circles to streamline the institutional set up the supervision of the financial sector," Lanoo said.

Even British Prime Minister Gordon Brown, who has opposed mandatory caps on executive bonuses, said the issue needs to be examined:

"Irresponsible remuneration policies were one of the factors that put the world economy at risk," Brown said. "People were being rewarded, not for the long-term success of the company, but for a deal that often turned out to be short-termist."

Exit strategies

EU leaders agreed the economy needs to stabilize before governments should abandon their stimulus plans. But there are growing calls for the world's leading economies to co-ordinate their exit strategies.

"With the economic recovery now coming, we need to formulate exit strategies," said Swedish Prime Minister Fredrik Reinfeldt, whose country holds the EU's rotating presidency.

"The foundation for the financial crisis was highly indebted people. The solution cannot be highly indebted countries."

The EU goes into the G-20 with what appears to be a united stance- an urgent call for urgent action.

EU officials argue that, in the long-term, governments should use public money to fight climate change instead of bailing out the banks.

But such decisions can only be taken at national level. The hope is that by signing up to an international set of guidelines, everyone will play by the rules.

Report: Nina-Maria Potts, Brussels
Editor: Sam Edmonds

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