France and Germany upped the ante on Wednesday, a day before the G20 summit, practically blaming the US for the ills visiting the world today.
“Thousands of people are victims of the current situation. They are blameless. I will not sign up to any false promises made to them,” France’s president Nicolas Sarkozy told a press conference here as US president Barack Obama tried to paper over the split between ‘Old Europe’ — a condescending reference to stodgy France and Germany — and the US.
“There is no firm agreement in place. We must lay down the rules for the 21st century,’’ Sarkozy said, making the strongest statement yet by a leader from the developed world for a complete, real, and fundamental reform of the world’s financial system that is more “moral and conscientious” so that there is never another crisis like the one seen now.
Angela Merkel, Germany’s chancellor, said France and Germany will “speak with one voice”.
Indirectly, the two countries indicated the need to regulate hedge funds and other American financial innovations that have wrought economic devastation. “We must name the tax havens and bring them within the purview of regulations. Those who don’t fall in place must also be named,” she said. “There is a need for a new global financial architecture.”
Which brings up the moot point: Thursday’s London summit is unlikely to go in the direction the US may wish it to, which is to ask the other developed blocks such as Europe to inject more stimuli into their individual economies.
Obama refused to concede that the summit was heading towards a crisis, saying there is “enormous consensus” among developed and emerging nations on the need to pull the global economic order out of its deepening funk.
“The core notion that government has to take some steps to deal with a contracting global marketplace and that we should be promoting growth — that’s not in dispute,” Obama said at a news conference with Britain’s prime minister Gordon Brown.
“On the regulatory side, this notion that somehow there are those who are pushing for regulation and those who are resisting regulation is belied by the facts,” Obama said, contesting the position of France and Germany.
Then there are countries like India, which state that the collapse of capital flows needs to be offset through multilateral lending agencies such as the International Monetary Fund.
“Capital flows have sharply declined. Trade credit has sharply declined. And there is a fall in export demand. The problems of emerging economies should also be taken on board,” prime minister Manmohan Singh told The Financial Times on Wednesday.
“The decline in capital flows should be made good by providing adequate resources to the international financial institutions to come to the rescue of emerging countries and low-income countries,” Singh said. He meets Obama on Thursday.
Singh also called for a more concerted effort to deal with the crisis, warning that the world would go into a downward spiral if “we give in to protectionist pressures”.
“It is understandable that in times of a severe downturn protectionist pressures mount, but the lessons of history are clear. If we give in to protectionist measures we will only send the world into a downward spiral. This will obviously hurt all countries and also India,” Singh said.
The stakes are high, with the world economy set to shrink this year for the first time since World War II and tens of millions of people losing their jobs. People will die in the world’s poorest countries if rich nations push them aside in the scramble to escape the global economic crisis, Egypt’s finance minister said.
