Saturday, 14 February 2009

Europe's leaders need to wake up to their own recession

Europe's leaders need to wake up to their own recession
French and German leaders have repeatedly called for an overhaul of the global financial system.

By Pierre Briançon,
Last Updated: 1:09PM GMT 13 Feb 2009

In spite of a poor personal relationship and differences on many other matters, Nicolas Sarkozy and Angela Merkel seem to agree on what the French president calls "the reform of capitalism". Calls for more regulation on banks, hedge funds, rating agencies, short-selling or tax heavens - to name only a few - play well in both Paris and Berlin.

There's a bit of schadenfreude in continental Europe at the crisis of the now much-criticised "Anglo-Saxon" model. That's understandable, after years of being talked down to by the model's practitioners and leading beneficiaries in the City and Wall Street - even though French and German banks tried hard to play with the big boys. But European leaders understandably want to seize the moment to push for greater coordination of global rules, so that tighter regulations in one country won't be undercut by deregulation in another.

Global reforms are certainly desirable, but regulation should not be at the top of the European agenda right now. There are more pressing matters.

The recession is deepening throughout the continent and governments have failed to come up with credible stimulus packages. Germany's GDP is expected to contract by some 2pc this year, France's by more than 1pc. EU members have responded with some sensible ideas, but many are tempted by the dangerous sirens of protectionism and economic nationalism - most recently demonstrated by the French auto industry bailout plan.

This weekend's meeting of finance ministers from the G7 group of industrialised countries in Rome will be the first opportunity for European finance ministers to meet Tim Geithner, their new US colleague. Instead of trying to put regulation on top the agenda, the Europeans should focus on the deepening recession.

Without sensible and coordinated policies to share the economic pain and get the financial system back in operation, the bad times could become much worse. If governments don't rise to the urgent economic and financial challenges, they may find there won't be much left to regulate.

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