Accessibility links

Breaking News

U.S., EU Leaders To Discuss Global Financial Meltdown

Sarkozy (left) Barroso are likely to run up against resistance to a major overhaul.
U.S. President George W. Bush, his French counterpart Nicolas Sarkozy, and European Commission President Jose Manuel Barroso are expected to gather at the Camp David presidential retreat outside the U.S. capital for talks on the current financial crisis and ways to avert economic turmoil in the future.

With market volatility high around the globe and fresh government bailouts dominating headlines on both sides of the Atlantic, several European leaders appear convinced that a new system is required to replace the post-World War II system of multilateral financial institutions.

But statements from the White House suggest that Europeans hoping to launch an effort to overhaul the global financial regulatory system at the meeting are likely to be disappointed.

French President Sarkozy, whose country holds the rotating EU Presidency, said earlier this week that the EU needed to work together with the U.S. and other countries to overhaul the world's financial system.

"Our priority now is the conference on Saturday evening with the president of the United States to prepare the global summit that the world needs to reestablish a capitalist system, a financial system, a monetary system -- and now we have, along with President Barroso, the necessary mandate from the 27 [EU member states] to go ahead," Sarkozy said.

Meanwhile, fresh U.S. data show growing joblessness, slumping consumer confidence, and fewer housing starts just as hundreds of billions of taxpayer dollars are being committed to shoring up Wall Street.

In a speech to the U.S. Chamber of Commerce in Washington on October 17, President Bush signaled his support for Europe's aggressive response to the financial crisis.

"Our European partners are taking bold steps," Bush said. "They show the world that we are determined to overcome this challenge together and they have the full support of the United States."

Bush made clear, however, that financial reforms inside the United States -- the world's largest economy -- will only come after a new U.S. president takes over in January.

White House spokeswoman Dana Perino further tempered expectations for the weekend meeting, saying the Bush administration's focus is on "stopping the bleeding" in the United States before "moving on to the next project."

Pressing For Change

Sarkozy has been calling for an international summit by the end of 2008 to coordinate an urgent response to the global financial crisis. He insists reforms cannot wait until Bush's successor -- who will be chosen on November 4 -- takes office.

Sarkozy says he hopes to discuss the future role of the International Monetary Fund (IMF), sweeping currency reforms, and finance-industry bonuses that some are blaming for fueling unnecessary risk-taking by financial institutions.

Sarkozy says the world is confronted by the worst economic and financial crisis since the 1930s, and many economists agree.

Unemployment has risen across Europe and the U.S. while analysts predict worsening economic conditions in most advanced economies.

Perceptions of financial institutions suffered another blow on October 17 when France's Caisse D'Epargne bank said it lost $800 million in a trading "incident."

Angry publics in Europe and the United States have been calling on bank bosses to return millions of dollars they have pocketed in bonuses in recent years.

Putting Out Fires

A key indicator of U.S. market sentiment, the U.S. Dow Jones industrial average, was volatile throughout the past week before closing up almost 5 percent on October 17.

Tokyo's Nikkei index had an equally unstable week, soaring a record 14 percent on October 14 before plummeting more than 11 percent .

Ukraine has said the IMF is prepared to offer it $14 billion in credit to prop up its economy.

Russia has indicated it still is not convinced it will issue billions in loans to help keep Iceland's economy afloat. And in Russia itself, Finance Minister Aleksei Kudrin has said $33 billion has flooded out of that country in the past two months.

In Hungary, the government agreed with the European Central Bank on a 5 billion-euro deal to boost its sagging economic prospects.

In Japan, the ruling Liberal Democratic Party has convened a panel to identify ways to recapitalize major banks with government money.

Bush Seeks To Reassure Americans

In the run-up to the Camp David meeting, Bush sought to reassure Americans that the U.S. government had no intention of becoming a permanent shareholder in private banks.

Bush predicted that the $700 billion rescue package the government will use to buy equity shares in some banks and purchase some troubled assets will help get loans flowing to consumers and businesses.

"Had the government not acted, the hole in our financial system would have grown larger," Bush said in his weekly radio address.

The plan to inject $250 billion in capital into U.S. banks in exchange for preferred shares has raised concerns about government interference in the private sector.

Bush sought to allay those fears by saying the government's involvement would be limited and the goal was to encourage banks to buy back their shares when markets stabilized.

"The government will not exercise control over any private firm, and federal officials will not have a seat around your local bank's boardroom table," Bush said. "The shares owned by the government will have voting rights that can be used only to protect the taxpayer's investment -- not to direct the firm's operations."

compiled from agency reports