Est. 3min 24-09-2008 (updated: 28-05-2012 ) Sarkozy_04.jpg Euractiv is part of the Trust Project >>> Languages: Français | DeutschPrint Email Facebook X LinkedIn WhatsApp Telegram French President Nicolas Sarkozy yesterday (23 September) called for a global summit to address the financial crisis, which he described as the “most serious” since the 1930s amid demands from MEPs for the Commission to introduce legislation aimed at better supervision and greater transparency of speculative funds and private equity. Addressing heads of state and government at the annual UN General Assembly debate, Sarkozy said a global summit was needed to rebuild “regulated capitalism […] in which banks do their job, which is to finance economic development, rather than engage in speculation”. Such a summit could take place in the context of an expanded meeting of the G8 in November, which would include emerging economies such as China, India and Brazil, Sarkozy suggested. Without giving details, Sarkozy said the world should find a new system in which “whole swathes of financial activity are not left to the sole judgment of market operators”. The reform of global financial institutions is key to this ‘new’ system, Sarkozy said, stating that “the 21st century world cannot be governed with the institutions of the 20th century”. Other governments echoed his call for reform of the so-called Bretton Woods system, which includes the IMF and the World Bank and has been in place since the end of the WWII. He also proposed forming a “joint economic community that would unite Russia and Europe,” a move that could be seen as an attempt to ease tensions with the EU’s large Eastern neighbour after the Georgian crisis (EURACTIV 16/09/08). Sarkozy’s announcement came amid growing calls for increased regulation of financial markets (EURACTIV 22/09/08). Yesterday, MEPs adopted by overwhelming majority two reports demanding that the Commission propose new legislation to ensure better supervision and transparency of hedge funds and managers’ pay. The report on hedge funds and private equity, drafted by Socialist rapporteur and Danish MEP Poul Nyrup Rasmussen, was approved by a vote of 562 to 86 amid 25 abstentions, while an EPP-ED report on the transparency of financial institutions, drafted by German MEP Klaus-Heiner Lehne, gained a 513 to 43 majority amid 117 abstentions. A proposed amendment by the Greens calling for a EU financial market surveillance authority to be established also secured a majority, but fell short of the required qualified majority. The Commission has three months to react to Parliament’s demands. But Commissioner Charlie McCreevy, responsible for financial services, is opposed to a new form of regulation for hedge funds and private equity, which he insists are “not the cause of the turmoil”. Read more with Euractiv ECB rules out US-style large-scale bailouts The European Central Bank (ECB) yesterday (22 September) moved to appease tensions in European money markets with a cash injection of $40 billion (€27.6 billion), but ruled out any US-style, large-scale bailout operations. Subscribe now to our newsletter EU Elections Decoded Email Address * Politics Newsletters Positions"Today, the European Parliament took the lead in a debate that has been going for years on the regulation of financial markets," said one of Parliament's two rapporteurs on the issue, Danish Socialist MEP Poul Nyrup Rasmussen. He added: "The good news is that we are now entering a new phase where regulations are comprehensive and cover all financial actors," which would mark "the end of the regulation-free ride of private equity and hedge funds." Referring to the current financial crisis, the EPP-ED rapporteur on the issue, German MEP Klaus-Heiner Lehne, said: "There is a need for harmonisation in the banking sector to reduce risks in the financial markets." Jaochim Lauk, the German EPP-ED shadow rapporteur, said the adopted reports would provide "a good basis for future EU financial market regulation," expressing satisfaction that Socialist views were "not included in the report anymore". British Liberal MEP Sharon Bowles, who had rejected the first draft of Rasmussen's first report but backed the final version, put the emphasis on more transparency and information in capital requirements, rather than singling out hedge funds and private equity specifically. "It is important that the Parliament does not adopt a reactionary, knee jerk response to recent events. To target hedge funds and private equity specifically for regulation is not the right approach. Regulation must be non-discriminatory and must be part of a broader overall package of monitoring risk," Bowles said. The Greens voted against the reports, criticising they were not far-reaching enough. "The seriousness of the current financial crisis calls for greater ambition. We need to rethink the fundamental rules for the financial sector and for hedge funds in particular so that they do not create systemic crisis," said Belgian Green MEP Pierre Jonkcheer. BackgroundThe recent collapse of one of America's leading investment banks Lehman Brothers has further intensified the debate on private equity and hedge funds, which are both private capital pools. Private equity investment funds invest in companies, mainly by acquiring businesses to sell them at a higher price, the so-called 'buy-out'. Hedge funds are investment vehicles exploiting market imperfections to get returns even while markets are falling. Private equity and hedge funds are very lightly regulated, which allows them to make investments and take risks that other actors cannot take. Following the credit crisis in the US, the European Parliament decided to draw up an own-initiative report calling for tighter regulation. Although the crisis was not determined by hedge and private funds, some believe they may have made it worse. The report, drafted by the President of the Socialist Party and former Danish Prime Minister Poul Nyrup Rasmussen, was adopted almost with unanimity by the Economic and Monetary Affairs Committee on 10 September (EURACTIV 11/09/08). Timeline 22 Dec 2008: Deadline by which Commissioner McCreevy must react to Parliament's action. Before June 2009: Commission expected to adopt legislation. Further ReadingEuropean Union Parliament:MEPs call for new legislation to ensure financial stability(23 September 2008) Political Groups EPP-ED:EU Financial Market Regulation demanded by European Parliament. Kurt Joachim Lauk MEP PSE:New and better regulation for financial markets ALDE:Hedge Funds: transparency, not over-regulation
