GERMAN CHANCELLOR Angela Merkel has called on the US to agree in principle to regulations which abolish "blind spots" in international financial markets at this weekend's G20 Washington summit.
The German leader hopes that the recent financial crisis will force the US and Britain to drop their opposition to tighter regulation of markets, and hedge funds in particular, after vetoing such plans during Germany's 2007 G8 presidency.
Dr Merkel made a call for greater transparency of off-balance-sheet transactions and for the US to implement the Basel-II agreement governing how much capital banks need to put aside.
"In addition, whoever sells risky products should have to keep a proportion on their own books. That disciplines," Dr Merkel told the Süddeutsche Zeitungnewspaper. "I have no understanding whatsoever for warnings now of too much regulation and state influence just after the state prevented much worse from happening. That is unreasonable."
Before leaving for Washington Dr Merkel said that she would do "everything to ensure that there are more rules to prevent us from ever having to face such a situation again".
One possible compromise which may gain support this weekend is adopting British prime minister Gordon Brown's suggestion for a network of international regulators who meet to monitor banks which have interests in multiple economies. Dr Merkel said she backs a "global map" to assess risks in the financial system; US president George W. Bush agrees that the G20 "must strengthen co-operation among the world's financial authorities".
Mr Bush remains averse to "too much" government meddling in markets, even after his administration backed bailouts of American International Group (AIG) and Bear Stearns and began implementing a $700 billion (€550 billion) rescue programme.
"Government intervention is not a cure-all," Mr Bush said in his weekly radio address, released by the White House before its broadcast today.
German officials admit that it will be difficult to get commitment at the Washington meeting but they are hopeful of starting a six-month process of consultation.
The German negotiating position is based on a paper prepared by an expert group headed by former European Central Bank chief economist Otmar Issing.
The paper lists the so-called "blind spots" of international finance, from uncontrolled hedge funds and off-balance-sheet vehicles like those which brought down the state-owned Sachsen LB bank through its Dublin subsidiary. Proposals in the paper include an international credit register to record all transactions over a critical limit as well as new rules for ratings agencies. Another proposal is for a new "risk world map" of all financial institutions and their products in the hope of preventing "bundling of risk" in one geographical region.
Aware that such proposals will meet huge resistance, Germany has suggested implementing them first at an EU level.
- (Additional reporting: Bloomberg)
