Preparation for the G20 Summit
Through this letter, France and Germany intend to contribute to the preparation of the spring European Council and enable the Europeans to speak with a single voice in the run-up to the G20. This is the only way our voice will be strong enough to protect our common interest by bringing our economies back onto the path of sustainable development in today’s globalized world.
On the eve of important meetings, we are utterly convinced that we must seize the unique historic opportunity offered us to deal with the underlying causes of the current crisis at the G20 summit in London on 2 April 2009, as identified at the Washington summit. The first priority is to build a new global financial architecture. The European Union must assert a common position and take the lead on this.
Thanks to the coordinated approach established under the French and Czech presidencies, the European Union and Member States have made a powerful contribution to limiting the economic impact of the current global recession. With a total of over €400 billion (around 3.3% of EU GDP), the European stimulus plan is helping the economy weather the crisis. It is generating new investment, sustaining demand, safeguarding jobs and making a significant contribution to reviving the global economy. With this plan, Europe is in the vanguard in the fight against the recession. At the European Council, we should send our citizens, our partners and the world of business a strong message of confidence in the scale and efficacy of our stimulus plans.
The stability and smooth operation of the financial markets are crucial for growth and employment. On the basis of the achievements of the Berlin preparatory summit in February we are determined to obtain at the London summit concrete results on strengthening international financial regulation, and we expect the IMF and FSF to monitor the G20 action plan’s implementation to ensure increased accountability. The European Union must propose that all hedge funds and other funds presenting a potential systemic risk be subject to appropriate registration, regulation and oversight. We have to work on developing an effective sanctions mechanism to protect ourselves from the risks posed by uncooperative jurisdictions which will have to be identified. We shall also have to encourage transparent sustainable wage policies.
The pro-cyclical effect of the current capital requirements is amplifying the crisis by reducing still further the banks’ ability to lend. The effects on industry are especially harmful. As well as speeding up revision of Basle II and the accounting rules to ensure that the banks can have additional cash resources when the time comes, the European Union and G20 should call for rapid measures to limit these pro-cyclical effects. We are asking the various working groups and institutions active in this area (FSF, Basle Committee on Banking Supervision and European Commission) rapidly to make the appropriate proposals and recommendations.
At financial sector level, there is need for greater stability, transparency and supervision. In this respect, we welcome the Larosière report and the Commission Communication proposing an ambitious new reform programme for the financial sector. To help develop international standards, the European Union must take resolute action to promote a European regulatory framework on the basis of the Larosière group’s recommendations. The first measures will have to be adopted by June.
The European Union should support a new charter for sustainable economic activity as a framework for States and international institutions. It should be based on market principles while at the same time designed to ensure a stable, socially balanced global economy respecting sustainable development. It should ultimately lead to the establishment of a global governance structure.
In the short term, current economic and financial measures may present a risk of distorting competition and hindering the free moment of goods, services and investments. Consequently, we ask the European Commission to monitor closely the risks of undermining fair competition within the internal market and with our international partners, and keep the Council informed on this. We should also stress our commitment not to erect new obstacles to trade, press our international partners to renounce such measures and rapidly conclude the Doha trade round.
Excessive public indebtedness poses a long-term threat to global stability. Sound public finances thus remain crucial to the European Union’s credibility and stability. We must commit to bolstering our public finances by implementing the Stability and Growth Pact. This will have to be speeded up as the economy recovers to ensure the rapid reduction of the deficits to below the reference value. While recognizing that we have to address growing challenges, we must renew our commitment to return as early as possible, in conformity with the Pact and keeping pace with the economic recovery, to our medium-term budgetary objectives.
Solidarity and responsibility are key European Union concepts. In this spirit, France and Germany welcome the European Union’s demonstration that it is ready, willing and able to help Member States in difficulty. The two countries reaffirm that the Euro Area is not a closed club.