WHAT ANGELA AND NICK WANT FROM THE G20

From: Le Figaro, April 2, 2009
“Sarkozy and Merkel united to impose their priorities at the G 20 Meeting.”

See: http://www.lefigaro.fr/international/2009/04/02/01003-20090402ARTFIG00004-sarkozy-et-merkel-unis-pour-imposer-leurs-priorites-au-g20-.php

Le Figaro reports on the activities at the Group of 20 Finance Ministers and Central Bank Govenors, meeting in London this year. The G 20 is a group of major countries which seek to promote global and financial stability. The group includes nineteen of the worlds largest economies, plus the EU. Attending this year in London are: Argentina, Austrailia, Brazil, China, France, Germany, India, Italy, Japan, Mexico, Russia, Saudia Arabia, South Africa, South Korea, Turkey, UK, USA and the EU. The cumulative GDP of the group represents 85% of the world’s GDP.

This piece in Le Figaro, roughly translated here, underscores the interests and intentions of two atendees: French President Nicholas Sarkozy and Germany’s Chancellor Angela Merkel.

Le Figaro states that these two “have attempted to leave their mark” on the G20, meeting this Wednesday in London. “While President Barack Obama and Michelle met with the Queen at Buckingham palace for tea”.. Nicholas and Angela.. “were meeting at a hotel in central London where they put the final touches to their (joint) negotiations. “We believe that in this crisis, one must attack the roots of the disease,” they were quoted as stating. …”We want concrete decisions. (And) for this, we are obliged to be firm and concrete,” insisted the Chancellor.

“Then at the working-dinner where the heads of state of the G20 at Downing Street were consecrated to the (hoped for) economic revival—a priority of the Americans, Japanese, English and Chinese—while Merkel and Sarkozy have reaffirmed as their prime objectives was “to obtain an ambitious reform of the international financial regulations.”

According the Le Figaro the joing French-German proposal consists of five (5) main points:

(1) Eliminate off shore financial centers. “Paris and Berlin wish to obtain an agreement of the G20 to eradicate the “fiscal paradise” of offshore financial centers "which do not conform to international norms.” They included a list of these centers.

(2) End transformation of obligations of credit. They demand and end to what they termed “titrisation”, defined as a financial technique which consists of transforming obligations of credit then bundling them and reselling them to investors. (Americans will recognize this as acquiring credit instruments then, slicing and dicing these instruments (such as mortgages) and reselling them to investors as a new “bundled” security (An alternate French description suggests: “Titrisation consists of regrouping certain types of securities (actifs) into securities which pay interest. The payment of the interst and of the principal for these securities is transferred to the purchaser of the security (titre)”.

(3) Strictly Control Hedge Funds. Paris and Berlin demand equally a strict control on hedge funds.

(4) Strictly Control Accounting Firms. Strict controls on accounting and other similar firms, the function which the two heads of state judge as “scandalous”.

(5) Modulation and Equalization of Trader Remuneration. And finally, they demand a “moralization” or modulation and equalization of the remuneration of traders to a generalized “world level” so that these functionaries will not be encouraged to take excessive risk.

The two agree that the Americans have made some effort in toward these goals but not enough. Their efforts seem to suggest that the American, British financial practices are the causes of the present crisis. And they rightly indicate what should be done. These are indeed necessary and reasonable requests. I would expect that Obama would agree to help implement them.

I suspect that Mr, Obama might say that these requests are a bit of “closing the barn door, after the horses left”. These goals will certainly help to limit and control future crises, but what about today? Obama goals seems directed toward encouraging both Germany and France to more aggressive monetary support for his plan to recapitalize the world banks. Expect more on this subject as it becomes available.