Coordinating exit strategies
Swedish Prime Minister Fredrick Reinfeldt, whose country holds the EU’s rotating presidency, said EU nations should not lose focus of the threats still hanging over the economy.
Europe wants a coordinated exit strategy from fiscal stimuli in place now, but the strategy should not be applied "until recovery is secured," said the summit's final statement.
"The outlook is uncertain and the risks remain," Reinfeldt said, explaining that there were signs of stabilisation but that large public deficits were expected in 2010 – around 10% of GDP for the G7 countries.
Strategies for exiting the crisis must be decided now but will be implemented later once the recovery has taken hold, Reinfeldt said, explaining that coordinating exit strategies will be a main topic at the Pittsburgh summit.
Alarming data on unemployment
Reinfeldt said unemployment in the EU is expected to reach almost 11% in 2010, which is a post-war record. The number of unemployed is estimated to increase by 9.5 million people between 2008 and 2010, which he said was more than the population of his country Sweden.
"This is a personal tragedy for those affected, but also a loss for society as a whole. Each and every unemployed person is a lost opportunity for further growth and prosperity. We need to take action and turn around this development," the Swedish prime minister said, adding that the need for a common response would be discussed at Pittsburgh.
Bonus ‘bubble burst’
The other major focus of the summit was to address the "excessive bonus culture" which prevails in banking institutions.
"The bonus bubble burst tonight," Reinfeldt announced at the outset of the summit.
"Enough is enough," he added saying EU citizens would no longer accept that bank's profits remain in private hands while their losses come at taxpayers' expense.
He also supported the idea of capping bonuses. "We know the US is against this idea, but I think it would be an appropriate measure."
However, remuneration caps do not appear in the informal common position agreed by leaders ahead of the Pittsburgh summit. The summit conclusions urge the G20 to "explore ways to limit total variable remuneration in a bank to a certain proportion either of total compensation or of the bank’s performance".
The text calls also for "bonuses to be set at an appropriate level in relation to fixed remuneration and made dependent on the performances of the bank, the business unit and the individuals".
Reinfeldt confirmed his hard line at the summit's final conference, warning that "banks, which owe their survival to taxpayers' money, should not be able in the future to take advantage of good results, pretending that the crisis was only a minor event".
All other leaders, including British Prime Minister Gordon Brown, supported a tough line on banks and bonuses. "We need an international agreement on bonuses, because people could go to countries where bonus structures are out of line with international agreements," Brown said.
French President Nicolas Sarkozy said Europeans will present a united front on the bonus issue in Pittsburgh. "We want precise commitments. We want the end of the bonus scandal. We want a different organisation for finance," he told a press conference after the summit.
"I think Mr Obama sincerely wants things to change in terms of bonus and systemic risks on financial institutions. He has understood that Europe want precise commitments. The issue which is still creating problems is the overall cap on bonuses."
Italian Prime Minister Silvio Berlusconi backed the idea of bonus caps, but stressed the importance of fighting speculation. "Caps on bonuses are important but they are a measure worth 'one', while the importance of tackling speculation is [worth] '100'." Italy pushed hard to include in the common text a reference to countering speculation on food alongside commitments to "containing speculation" in the oil and gas markets.
Leaders also agreed that "the payment of a major part of significant variable compensation must be deferred over time for an appropriate period and could be cancelled in case of a negative development in the bank's performance," according to the summit's final communiqué.
Reinfeldt said that if the EU were able to speak with one voice, that unity would make a difference at global level. "It should not be underestimated that with a population of 500 million people, representing over 22% of the world's total economic output, the EU is the number one leading economy and economic actor in the world," Reinfeldt said.
Climate change negotiations 'far too slow'
On climate change, the other major topic discussed at yesterday's summit, Reinfeldt said progress made in international negotiations was "far too slow".
"The world has a fever as we know. We need to stop the acting and start the action," the EU's rotating president said, adding that this would be the message he will be delivering to Pittsburgh.
Financial resources will need to be "scaled up urgently and substantially" to reduce global greenhouse gas emissions, EU leaders said.
Referring to emerging economies such as China and India, they added "all countries, except the least developed ones" should contribute to financing the fight against climate change in developing countries. These countries, leaders said, need to lay down "the appropriate mitigation actions [….], especially those that are economically more advanced".
The European Commission estimates that the total net incremental cost of mitigation and adaptation in developing countries could amount to about 100 billion euros annually by 2020, to be shared between domestic finance, carbon market-based financing and international support.
EU leaders agreed that public funding should be shared on the basis of a universal, comprehensive and specific contribution key, reflecting ability to pay and responsibility for emissions.
Moreover, they agreed to push for a commitment to providing an annual €5-7 billion of upfront financing between 2010 and 2012 in Pittsburgh, according to the Commission's recommendations.
"We have 80 days left to Copenhagen, 15 negotiation days left in Bangkok [where the preparatory work for the December summit takes place], and 2,500 brackets in the negotiation documents to solve," Reinfeldt said.
"The developing world needs our help to pay the bill, a bill that we helped to create through our emissions," Reinfeldt said, adding that in the coming 80 days, climate change would be at the top of his agenda.
