France and Germany delivered a late threat to derail Gordon Brown’s efforts to secure a global recovery deal last night by demanding new concessions from the United States on financial regulation.
In a classic show of eve-of-summit brinkmanship, Angela Merkel and Nicolas Sarkozy joined forces to give warning that they would refuse to sign any agreement that did not meet their “red lines” on tax havens, hedge fund regulation, tracing “securitised” assets sold around the world and capping bankers’ remuneration. They also wanted the “naming and shaming” of tax havens that refused to go along with tougher regulatory rules, which is being opposed by the United States.
In a reminder of former confrontations between America and the countries of Old Europe, Mr Sarkozy suggested that Europe would not take economic direction from the US. He appeared to suggest that America would have to compromise, adding pointedly: “The crisis didn’t spontaneously erupt in Europe, did it ?
The firm stance of Mr Sarkozy and Ms Merkel and the language used in a joint press conference took negotiators by surprise as they prepared to work through the night on the communiqué to be released today.
Although Mr Brown and President Obama appeared confident of an agreement throughout yesterday’s talks in London, it was clear last night that Mr Obama would have to make more concessions if differences were to be smoothed over.
Officials pointed out that several of the demands made by Mr Sarkozy and Ms Merkel had already been granted in the run-up to the summit. One said that they were setting themselves up to claim victory afterwards. But officials accepted that in order to be able to sell an agreement to their home audiences, further changes might have to be made today.
Mr Sarkozy has already threatened to walk out of the gathering if he does not get his way and said last night that the German-Franco demands on regulation were “non-negotiable”. Both added that the “new financial architecture” must come today rather than be foisted off to another G20 summit.
Mr Sarkozy said that the summit provided a once-in-a-lifetime opportunity to give capitalism a conscience.He added: “Germany and France will speak with one and the same voice. The objective is a simple one — we demand results; we want hard and fast results.”
Ms Merkel said that the two countries wanted to see “a new architecture and new regulations for financial markets” spelt out very clearly in the final communiqué of the summit. She added: “We have come in a constructive mood. We don’t want results that have no impact in practice but results that change the world as we know it.”
The French President said he trusted Mr Obama and was not pointing the finger of blame at any specific country for the crisis. But he indicated that France and Germany would be ready to discuss other issues only if they felt that their priority of tougher regulation was being adequately dealt with. “This is an historic and unique opportunity to build a new world and this opportunity we do not want to see pass by. Without regulation there will be no trust and confidence and without confidence there will be no relaunch of the economy.” He added: “We are totally prepared to discuss other things so long as these issues are clearly dealt with and solved.”
Ms Merkel said: “The day after tomorrow will be too late. The decisions need to be taken now — today and tomorrow.”
The tone of the two leaders differed sharply from that adopted by Mr Brown and Mr Obama earlier in the day. Mr Brown spoke of leaders being “within a few hours” of agreeing a global plan for economic recovery.
Mr Obama said he was “absolutely confident” that the meeting would reflect an enormous consensus about the need to work together. He said that he understood the desire to inject drama into the occasion but there had been “extraordinary convergence”.
Mr Obama also had a warning for fellow leaders. The US would do its share in promoting growth but it had its own domestic economic problems to deal with, including the current account deficits. “If there’s going to be renewed growth it can’t just be the United States as the engine,” he said. “Everybody is going to have to pick up the pace.”
