Divided EU leaders head into financial summit (AP)
03.10.2008 23:30 Business
The talks, hurriedly put together by French President Nicolas Sarkozy, come amid mounting signs that the financial crisis that devastated Wall Street is spilling into the real economy and amplifying a slowdown across Europe.
European governments have had to step in and bail out several major banks, including Britain's Bradford & Bingley, Belgian-Dutch Fortis and Belgium's Dexia. Host nation France is the latest country to fall into recession, data showed Friday.
Sarkozy set the stage by calling Friday for "an intense effort to coordinate" Europe's response to the crisis. Specifically, he called for strengthened European financial supervision, greater economic transparency, mechanisms to limit excessive risk taking in finance and EU measures to boost growth.
"Our citizens expect resolute action on our part to protect them," Sarkozy said in a letter to European Commission President Jose Manuel Barroso.
But a senior Sarkozy aide sought to dampen expectations ahead of the meeting, saying the French leader, British Prime Minister Gordon Brown, German Chancellor Angela Merkel and Italian Premier Silvio Berlusconi would concentrate on seeking common ground on the issues and preparing for upcoming international meetings. The aide would not be identified by name, under rules laid down by the presidential office.
At the summit, Sarkozy will propose that Europe heighten the security of its banking system, free up credit and coordinate its economic and monetary strategy, Prime Minister Francois Fillon said.
"There is no other way out of the crisis but collectively," Fillon said.
Other possible topics include banks' balance sheets and lending capacity, securitization, leverage and accounting standards, France's European Affairs Minister Jean-Pierre Jouyet told newspaper Les Echos.
The hasty summit preparations were muddied by a French proposal, voiced by Finance Minister Christine Lagarde, to create an emergency EU fund for struggling banks. After a swift rejection from Germany, Sarkozy distanced France from the idea. The confusion boded ill for the chances of a strong European response being agreed to at the summit.
"I don't expect much," said Marc Touati, chief economist at Paris brokerage Global Equities. "There won't be any big measures taken, unfortunately. The best we can hope for is some grand statement on maintaining European unity."
Sarkozy canceled a speech Friday to prepare for the talks, which will also be attended by European Commission PresidentJose Manuel Barroso, European Central Bank PresidentJean-Claude Trichet, and LuxembourgPrime Minister Jean-Claude Juncker, who also chairs the group of euro-zone finance ministers.
The crisis could also re-ignite tensions between France and Germany that have bubbled up occasionally since Sarkozy was elected in May 2007. "France has little negotiating leverage over Germany because of its poor performance on its deficit," Touati said.
France last week backtracked on a promise to its European counterparts of eliminating its budget deficit by 2012 — but vowed to keep the budget gap under the EU's 3-percent limit this year and next.
British Prime Minister Gordon Brown may also find it difficult to square his domestic political difficulties with the need for a common European stance, said Philip Whyte, a senior research fellow at London-based think tank Center for European Reform.
Britain "is in favor of European cooperation to bailout ailing banks," Whyte said, but Brown "doesn't want to anything at the European level that ties his hands domestically."
Brown has suggested that his county would not offer its banks a bailout like the $700 billion package that the administration of U.S. President George W. Bush has pushed for Wall Street.
Whyte said EU leaders are also nervous about Ireland's move to grant a comprehensive bank guarantee on all deposits and debts of Irish-owned banks. The European Union, Britain and other EU states battling their own banking crises complained that Ireland was promoting unfair competition.
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Associated Press Writers Laurent Pirot in Paris, Emmanuel Georges-Picot in Antibes, France, and Raphael Satter in London contributed to this report.
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