European Union leaders meeting in Brussels on Friday (20 March) thrashed out a common strategy before next month's G20 summit in London, pushing for tighter rules to regulate global financial markets and tax havens. But they did not make any additional commitments to fiscal stimulus plans promoted by the United States.

In their summit conclusions, EU leaders committed to regulating hedge funds, private equities, credit derivatives and credit rating agencies, and vowed to crack down on tax havens, which are also known as "non-transparent jurisdictions" (EurActiv 18/03/09).

No extra stimulus

The text avoids commiting more money to help the economic recovery, underlining that the current size of the EU's overall fiscal effort (around 3.3% of EU GDP, or over €400 billion) "will generate new investments, boost demand, create jobs and help the EU move to a low-carbon economy".

German Finance Minister Peer Steinbrück made it plain: "There is a very clear reticence to participate in the race, which seems to be triggered time and again over who has the biggest fiscal stimulus package. I think it would make a whole lot of sense if we were more sensible in our public debate," he told reporters at the end of the summit.

Although agreeing to the final conclusions, UK Prime Minister Gordon Brown did not rule out further action to support the economy. "We will take all the necessary actions to deal with unemployment and growth," he said.

Poul Nyrup Rasmussen, president of the Party of European Socialists (PES), said: "Europe has been badly let down. The forecasts get worse, but the so-called recovery plan remains unchanged. It is not up to the challenge ahead of us. The fire is spreading, but there are no more firefighters on their way."

Hege funds and private equity

On the other hand, leaders agreed to ask the G20 to ensure "appropriate regulation and oversight of all financial markets, products and participants that may present a systemic risk, without exception and regardless of their country of domicile".

"This is especially true for private pools of capital, including hedge funds, private equity and alternative investment vehicles," read the summit conclusions. 

The wording appears to represent an important victory for Socialists, who were pushing for a tough line against these speculative instruments, despite their not being considered the main culprits of the current financial and economic crisis (EurActiv 27/02/09).

EU leaders also want to "enhance the transparency and resilience of credit derivatives markets, especially by promoting the standardisation of contracts and the use of central clearing counterparties, subject to effective regulation and supervision". However, the text remains vague about the need of one or more clearing houses at EU level. France and the UK are currently at odds over the location (Paris or London) of a possible single EU clearing counterparty for credit derivatives (EurActiv 20/02/09).

Cracking down on tax havens

Despite the ambiguous positions of some member states, EU leaders did endorse a tough line against tax evasion and required the G20 to "protect the financial system from non-transparent, non-cooperative and loosely regulated jurisdictions, including offshore centres". 

Leaders also called on the G20 to "request the listing of such jurisdictions and develop a toolbox of sanctions that permits the application of appropriate and gradual countermeasures".

French President Nicolas Sarkozy hailed the agreement on tax havens, which he said was "an unanimous decision". "It was not a foregone conclusion, and I want to salute the great open mindedness of Gordon Brown."

Asked about whether the UK had agreed to regulate offshore centres, Sarkozy said: "Regarding the Cayman Islands, it goes without saying that what applies to us also applies to our British friends. There is no exception. And therefore, the Caymans and the Shetlands" will also have to conform to transparency rules, Sarkozy said.

"If Europe wants to be heard, it must set the example. If we don't do the house-cleaning in Europe, how do you want others to do the same?," he asked.

EU to finalise regulatory measures in June

The summit welcomed the De Larosière report on financial supervision and included some of its proposals in its message to the G20, notably regarding the "rapid establishment of colleges of supervisors for all major cross-border financial institutions" and "making macro-prudential supervision a standard part of the financial sector oversight" (EurActiv 26/02/09).

However, leaders did not fully endorse the report, mainly because of the different views that emerged between EU members. The report will be subject to further debate in the coming months, in view of reaching "first decisions" at the next European summit in June.