G4 approves assistance but rejects any EU-wide bail-out fund
Germany, France, the United Kingdom and Italy intend to intervene in future too, if the deposits of savers, businesses and local authorities are jeopardised because banks are teetering on the brink of insolvency.
Before the meeting Nicolas Sarkozy proposed that an EU-wide rescue fund be put in place, but the other leaders were reluctant to go along with this idea. The so-called G4 summit was not prepared to use tax-payers’ money to bail out irresponsible bankers.
"We have agreed that we must adopt a coherent approach, with each member state accepting national responsibilities. We must, however, also ensure that no EU member state harms any other as a result of its national procedure,” said Chancellor Angela Merkel after the talks in Paris.
In an effort to ease the credit crunch, the Irish government announced unlimited guarantees for deposits at major banks, without consulting its partners. This forced London in turn to raise its own bank guarantees to prevent a stampede to transfer savings from the UK to Ireland. The European Central Bank and the EU Commission will be talking to the Irish government to resolve this problem.
Regulations for greater transparency
The G4 also called for managers’ salaries to be structured in a way that fosters "responsibility and integrity”.
At the outset of the summit Angela Merkel pointed out that although politicians must of course accept responsibility in this difficult situation, it was up to those who had caused the damage in the first place "to do their bit”.
All players on the financial market must be required to comply with regulations, and their activities must be monitored, declared Nicolas Sarkozy, and hedge funds and rating agencies cannot be exempted. The accountability regulations for banks must be modified to avoid speculation bubbles in future. The EU Commission intends to produce regulations rapidly that will secure savers’ deposits.
The Paris summit also proposed setting up a task force of watchdog authorities, central banks and ministries of finance to tackle crises.
Focus on EU Stability and Growth Pact
The talks in Paris also focussed on the EU Stability and Growth Pact. France would like to see a temporarily relaxation of the terms of the Pact.
"The European Stability and Growth Pact must also take into account the specific circumstances in which we find ourselves – the Pact does in any case provide for such options,” declared the French President. In the current situation he would like to raise spending, in order to jump start the economy and prevent any slide into recession.
"The Stability and Growth Pact will be enforced precisely as it stands,” countered Jean-Claude Juncker. The 2005 amendment makes it possible to interpret the provisions in a more economic sense. The regulations can be more detailed and more precise without jeopardising any member state.
Confidence is vital for survival
Confidence in the financial markets must be restored. On this point all G4 summit participants agreed.
Jean-Claude Trichet, President of the European Central Bank, explained, "We are doing our best to maintain and restore confidence. There can be no doubt that confidence is the most vital factor in the current circumstances. I am convinced that the decisions we make here will help restore confidence once more.”
The next steps
The next meetings planned will also be focussing on confidence. The Paris summit prepared the ground for a meeting of the eight leading industrial nations (G8) to be held shortly in Washington D.C. The G8 nations also include the USA, Japan, Canada and Russia.
Nicolas Sarkozy could even visualise a "summit of the worst hit states to re-establish the global financial system” to be held in the medium term.
At its summit meeting on 15 and 16 October in Brussels, the EU will be unveiling its response to the financial crisis. The decisions are to be prepared by the EU ministers of finance at the start of next week.
