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Chair's Summary of the Berlin G 20 Preparatory Summit

Today the EU leaders participating at the G 20 summit in London on 2
April met in Berlin to coordinate their position. The outcome of
today’s meeting will contribute to the debate of the European Council
on 19/20 March in Brussels. 

Today’s discussion is summarized by the chair, Chancellor Angela
Merkel, as follows:

A) Renewing global financial market regulation is a priority

We are making good progress towards creating a new global financial
market architecture. At the Summit of Heads of State and Government in
Washington on 15 November 2008, the Group of Twenty (G20) states pledged
to undertake concrete reforms. We welcome the fact that the work of the
Finance Ministers on this is progressing according to plan. We reaffirm
our determination to implement the joint decisions of 15 November
swiftly and completely. It will be crucial after 2 April to maintain the
pressure to implement these measures consistently and comprehensively.
Today in Berlin we propose that the International Monetary Fund (IMF)
and the Financial Stability Forum (FSF) be charged with monitoring and
promoting the implementation of the international recommendations on
putting the Action Plan into practice and with reporting back to G20
countries.

Transparency and accountability on the part of all financial market
participants are indispensable for the stability of the global financial
markets. We have therefore today underscored once again our conviction
that all financial markets, products and participants must be subject to
appropriate oversight or regulation, without exception and regardless of
their country of domicile. This is especially true for those private
pools of capital, including hedge funds, that may present a systemic
risk. Therefore we call for appropriate  oversight or regulation of
these sectors in order to prevent excessive risk-taking. We also agreed
that credit rating agencies should be subject to mandatory registration
and oversight.

In our opinion, the following elements are of particular importance for
the future global financial market framework, so we will strongly
advocate them at the London Summit:

The promotion of systemic stability in the global financial markets
including by mitigating the pro-cyclical effects of regulatory measures
in order to constrain the amplifying impact of financial market
fluctuations on the real economy. Therefore we have today agreed on
advocating reforms to ensure that banks build additional buffers of
resources in good times, and we encourage the working groups and
institutions active in this field (FSF, Basel Committee on Banking
Supervision, EU-Commission) to submit appropriate recommendations as
soon as possible.

	Definitive actions against tax havens and uncooperative jurisdictions.
According to objective criteria to be based on ongoing work in relevant
international institutions, a list of uncooperative jurisdictions and a
toolbox of sanctions must be devised as soon as possible. These
sanctions would cover non-cooperation in exchanging information  on tax
evasion with other supervisors or authorities.. This also holds for
prudential information or information related to activities to fight
money laundering and financing of terrorism. The Financial Action Task
Force (FATF), OECD and FSF should submit proposals in their respective
fields to the G20 Finance Ministers meeting in March, for review at the
London Summit.

	The development of an effective early warning system by the IMF and
FSF, working in close cooperation. We welcome the steps taken so far to
improve cooperation, especially those pertaining to the conduct of an
early warning exercise. The IMF and FSF should present concrete
proposals based on this exercise to the IMF Committee and the G20 prior
to the IMF Spring Meeting. The results of the early warning exercise
should in future be submitted to the IMFC and the G20 and published in a
joint report.

The adoption of principles on compensation practices to prevent bonus
payments that contribute to excessive risk-taking. We share misgivings
about current compensation practices and agree that financial
institutions must adopt sound incentives, which are transparent and
closely linked to sustainable and long-term results. We therefore call
on the FSF to adopt such principles before the London Summit.

Recognizing the need to press forward with strengthening our financial
systems for the future, we have committed ourselves to engage in a
debate in London with the aim of agreeing on a broad charter of
principles for financial regulation as a contribution to developing of a
charter for sustainable economic activity. 

 

B)	Short-term crisis management has to address distortions in
competition

Many governments and central banks have already taken resolute actions
stabilizing financial markets. However, the situation remains fraught
and participants' confidence in the markets has not yet been restored.
We firmly uphold our commitment to continue to assist
systemically-important financial institutions. This assurance limits the
future risks for the international financial markets and produces
important external benefits, at home and abroad. We must also devote our
best efforts to securing credit flows from banks to firms and
households.

There has not been a worldwide recession of the scale we are seeing
today for several decades. Europe has responded to this challenge
quickly and with determination in line with the common framework decided
by the European Council in December 2008. Almost all Member States have
adopted comprehensive fiscal, monetary and structural measures to
support the economy and to secure growth and employment. As these
measures take effect over the coming months they will tangibly support
growth. We should work together to review the impact and effectiveness
of the measures we have taken. It is our common understanding that we
will come out of this crisis strengthened only if we proceed to
implement structural reforms and focus on public spending that improves
growth prospects. 

We commit ourselves to implementing our stimulus measures and our
financial rescue plans in a manner that limits distortions to
competition to an absolute minimum. In this vein, the G20 should work
out common principles for such measures, so that national economies do
not obtain any undue unilateral advantages. Concerning financial
markets, we in the EU need common principles for dealing with impaired
assets not least in order to limit the burden on public finances and to
set international standards early on. 

C) Ensuring sustainable economic policy

It is our firm intention to return to the path of a sustainable
budgetary policy as soon as possible. We must ensure that public
finances are sound in the long term also as a prerequisite for the
enduring effectiveness of our current measures. In order to lastingly
guarantee stable economic and social development at global level and to
prevent future crises, we need a framework borne by states and
international organizations, which is based on market forces but
prevents excess, and which ultimately leads to the establishment of a
global governance structure. We will actively support discussions on a
new charter for sustainable economic activity at the London Summit and
we favourably take note of the fact that the work on its first building
block - a set of common principles and standards on propriety,
integrity, and transparency of economic and financial activity - has
already been started within the G8-process.

Free trade and openness to cross-border investment are important
preconditions for ensuring that economic momentum is sustainable and
regained on a global scale. The first priority is to achieve a
breakthrough in the Doha Round of WTO negotiations in the coming months
to safeguard the global economy against protectionism. At the London
Summit leaders should send a powerful message to this effect. Given the
current difficult state of the global economy, all countries have a duty
to resist protectionist tendencies and to work towards a tangible
further opening of world trade. We commit ourselves today not to take
any action violating this principle and support the WTO in its efforts
to establish a monitoring system. We also undertake to address the trade
finance shortage which significantly impedes international trade.

Global efforts to fight climate change must not be neglected because of
the economic and financial crisis. This year's UN Climate Change
Conference in Copenhagen must agree on the global efforts needed to curb
climate change. We will contribute to this goal in London.

The financial crisis and the global economic downturn have had
far-reaching effects, especially on developing countries. It is more
important than ever for the international community to remain committed
to its poverty reduction goals and in particular the implementation of
the Millennium Development Goals. We also reiterate the importance of
avoiding measures that exacerbate the contraction of worldwide capital
flows, including to developing countries, as agreed at the Washington
Summit. We will strongly advocate these issues at the London Summit.

D)	Improving international cooperation – strengthening international
institutions 

The international financial institutions have an important role to play
in the current financial and economic crisis. We have a shared interest
in ensuring emerging and developing markets continue to contribute to
global demand, and in protecting the poor and vulnerable. To this end
the international financial institutions must be endowed with adequate
resources.

The resources needed to address the impact of the economic crisis and
the credit crunch on emerging markets and developing countries  - in
particular prevent capital account crises, recapitalize banking systems
and facilitate infrastructure packages  -  are greater than those
currently available to the international financial institutions.

We thus have agreed today to support doubling the funds available to the
IMF. The IMF must be in a position to help its members swiftly and
flexibly when they experience difficulties with respect to their balance
of payments and accessing capital markets. We should consider options to
reform the IMF’s lending instruments to strengthen their ability to
meet the needs of their members during these difficult times, and to
respond to crises in the future. 

We call on the World Bank and regional development banks to use their
current instruments quickly and flexibly and to introduce new
instruments where existing ones do not suffice. We welcome the readiness
of the World Bank Group and the European Bank for Reconstruction and
Development to significantly extend their lending practices making
maximum use of their capital to sustain resource flows to emerging
market and developing countries given the curtailing of private sector
flows. The Multilateral Development Banks should move quickly to fill
financing needs for sustainable investment where private capital markets
are not functioning well, and to aid members in strengthening their
banking and wider financial systems. We noted in particular the risks to
the banking sectors in some central and eastern European countries.

We agreed to work with the IMF and World Bank on a clear process and
timetable for reforming the governance of these institutions to reflect
the changing nature of the world economy and to make them more
responsive to future challenges.

We should strengthen in particular the remit of the IMF and FSF to
provide effective surveillance of global economic risks and early
warning systems to prevent a recurrence of crises in the future.

The establishment of supervisory colleges for cross border financial
institutions is a key element for improving international cooperation on
financial oversight. Significant progress has already been achieved on
this front; we encourage all countries to commit themselves to establish
such colleges and in particular to make active use of them as soon as
possible.

We strongly support the enlargement and strengthening of the FSF to
include major financial and economic actors and call for this measure to
be implemented swiftly in good time before the London Summit.