ECOFIN: EU Scaling Back Plans To Reshape Global Financial System

ECOFIN: EU Scaling Back Plans To Reshape Global Financial System

By Adam Cohen


BRUSSELS -(Dow Jones)- The European Union is scaling-back ambitions to reshape the global economic order in favor of a modest bid to boost cooperation among regulators and increasefunding for International Monetary Fund bailouts, according to a French government proposal and two senior E.U. officials.

The bloc will push a version of this plan at a Nov. 15 meeting in Washington, D.C. where leaders from the world's 20 largest economies will discuss ways to shore up the international financial system and avoid future crises.

The E.U.'s finance ministers are meeting Tuesday to discuss a common negotiating position ahead of that meeting. The bloc's leaders are slated to meet Friday to finalize their proposals.

E.U. leaders had grander ambitions a month ago, when several large banks were on the brink of collapse.

French President Nicolas Sarkozy spoke of "re-founding" capitalism. British Prime Minister Gordon Brown said the IMF should be remade as the "global central bank" that was envisioned in the Bretton Woods Agreements of 1944.

The French government, which can steer policy in its current role as holder of the bloc's rotating presidency, now wants "an information network and an early warning system" that would detect risks to the financial system, according to a copy of the proposal that was obtainedby Dow Jones Newswires.

France also wants a "supervisory college" that would monitor large financial companies that operate across borders. This group would be limited to the E.U. level, monitoring the 42 or so companies that are considered crucial to the bloc's financial system, a senior E.U. official said.

The official noted that the U.S., China and other states aren't likely to agree to an international overseer for multinational companies, an idea Brown suggested in October.

Brown's idea to make the IMF a powerful international regulator and financier also will be watered-down ahead of the Washington meeting. The French proposal suggests the Fund should be "more strongly legitimated" and give key emerging economies like China and India a stronger role.

The E.U. wants a new IMF financing facility to provide quick support to well run countries that face financing difficulties as a result of the global credit crunch, but without its usual set of required reforms.

It will suggest setting up a new fund of about $125 billion, another senior E.U. official said, less than the hundreds of billions Brown has called for.

This new fund would boost the IMF's current $250 billion capacity to help countries facing financing problems. The E.U. wants countries in Asia and the Middle East to provide some of this money in return for a greater say in how the IMF is run.

The E.U. also wants the IMF to evaluate the effectiveness of national financial-market regulators when it conducts its regular "Article IV" consultations. These reviews wouldn't make the IMF a powerful regulator. They would stop short of scrutinizing the risks facing specific banks and insurers and only examine whether national regulators have adequate information and access to detect critical problems.

-By Adam Cohen, Dow Jones Newswires; +322 741 1486; [email protected]

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(END) Dow Jones Newswires

November 04, 2008 06:28 ET (11:28 GMT)

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