Financial Reform Watch : Financial Services News & Information : Blank Rome Government Relations Lobbying Firm : Government Relations, Corporate Governance : Financial Reform Watch Law Blog

The European Commission yesterday put forward its framework proposal on Financial Supervision in Europe. The proposal covers a set of far-reaching reforms to the current architecture of supervisory committees, with the creation of a new European Systemic Risk Council (ESRC) and European System of Financial Supervisors (ESFS), composed of new European Supervisory Authorities. Legislation to embody these proposals will follow in the autumn and will thus be finalized under the leadership of new Commissioners who will be appointed during the summer.

With this initiative, the Commission is responding to the weaknesses identified during the financial crisis as well as to the G20 call to take action to build a stronger, more globally consistent, regulatory and supervisory system for financial services. The proposed financial supervision package involves two key elements.

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The EU this week took an important step on the path of re-organizing both its institutional set-up as well as the substantive rules related to financial reform. On Thursday, the EC Commission organized a full-day conference with representatives from the EU Institutions, national supervisors, the financial industry, consumers, and trade unions. The EC Commissioner in charge of the reform, Charlie McCreevy, confirmed that “We are on the eve of a quantum leap forward for effective supervision in the EU.”

A particular problem facing the European financial industry is how to share the burden of supervising cross-border financial groups. Some 40 to 45 large cross-border groups now account for almost 70 percent of all banking assets in Europe. The flaws of the current system are particularly acute for the new EU Member States, where banking markets are mostly dominated by foreign banks. Although the concentration of foreign banks has provided significant benefits to these Member States, it has also made it increasingly difficult for these countries to genuinely safeguard the stability of their financial systems.

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The EC Commission on Wednesday proposed new binding legislation on “Alternative Investment Fund Managers” (AIFM), which includes the managers of hedge funds and private equity funds. This is, according to the Commission, the first attempt in any jurisdiction to create a comprehensive framework for the direct regulation and supervision in the alternative fund industry. The proposal now passes to the European Parliament and Council for consideration.

 The proposed AIFM Directive would:

• Adopt an 'all encompassing' approach so as to ensure that no significant AIFM escapes effective regulation and oversight. The Directive will only apply to those AIFM managing a portfolio of more than 100 million euros. A higher threshold of 500 million euros applies to AIFM not using leverage (and having a five year lock-in period for their investors) as they are not regarded as posing systemic risks. A threshold of 100 million euros implies that roughly 30 percent of hedge fund managers, managing almost 90 percent of EU-domiciled hedge fund assets, would be covered by the Directive.
• Regulate all major sources of risks in the alternative investment value chain by ensuring that AIFM are authorized and subject to ongoing regulation and that key service providers, including depositaries and administrators, are subject to robust regulatory standards.
• Enhance the transparency of AIFM and the funds they manage for supervisors, investors, and other key stakeholders.
• Ensure that all regulated entities are subject to appropriate governance standards and have robust systems in place for the management of risks, liquidity, and conflicts of interest.
• Permit AIFM to market funds to professional investors throughout the EU subject to compliance with demanding regulatory standards.
• Grant access to the European market to third country funds after a transitional period of three years. This should allow the EU to determine whether the necessary guarantees are in place in the countries where the funds are domiciled (e.g. the equivalence of regulatory and supervisory standards and the exchange of information on tax matters).

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The United States and EU Member States are steadily chipping away at the iceberg that is the global financial crisis. The European Parliament on Wednesday approved the so-called “Solvency II” Directive, which, if also approved by the Council of Ministers, constitutes a significant change in EU insurance and reinsurance law. Solvency II is designed to improve consumer protection, modernize supervision, and deepen market integration. Insurance groups would have a dedicated “group supervisor” that would enable better monitoring of the group as a whole.

Commission President José Manual Barroso said:

"Solvency II will help protect policy holders from bad practice. It will help shield our economies against a repeat of the disastrous excessive risk taking by financial institutions, including certain insurance operators, that has contributed to the global crisis."

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The G20 meeting has slipped quietly below the water line as a news story in the United States—replaced by Michelle Obama's star power, the North Korean rocket, and the NCAA basketball championships. However, there are still some ripples from it moving across the seascape of U.S. politics.

In Europe, on the other hand, policy proposals are being drafted and, sometimes leaked, to gauge the views of constituents. The EC Commission’s proposal (though it has yet to be formally adopted) concerning regulation of private equity and hedge funds, an issue also hotly debated at G20, found its way into the media today—managers of hedge funds and private equity funds need to be registered while their funds must hold a minimum level of capital and also disclose information on borrowing to regulators.

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International summits are frequently more about atmospherics than they are about substance. The G20 meeting just concluded in London was no different from the norm. On a substantive level, the most consequential outcomes were the $750 billion in IMF capitalization ($500 billion in loans and guarantees and $250 billion in Special Drawing Rights) to aid emerging nations, $250 billion in trade credits from the IMF, and $100 billion in loans from other multilateral institutions. Certainly a substantial allocation of resources, but hardly a package that required heads of government for approval.

What did require the presence of the leaders of these nations was the display of common purpose that emerged from the meetings. While no concrete steps were agreed to, the mutual commitments to expand trade, tighten financial regulation, establish global monitoring systems and support greater transparency in executive compensation demonstrate a recognition of many of the key elements that led to the current crisis. The communiqué issued at the conclusion of the meeting touches on all these issues.

While not a crucial issue in the discussions, the matter of regulation of tax havens came into focus in the American media because of President Obama's reported role in bridging a divide between French President Nicholas Sarkozy and Chinese Premier Hu Jintao. According to an account from the White House that was corroborated by French and German government sources, Obama pulled the two leaders aside, first separately and then together, to negotiate a language change that papered over the differences that had emerged between the two during the group discussions. American media have reported widely on this sideshow because it is viewed as reflective of the difference in style between this U.S. President and his predecessor.

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On Monday's post, we pointed out the potential for posturing at the G20 due to the high stakes and the short-meeting format. On Tuesday, French President Nicholas Sarkozy threatened to walk out of the meeting if there was not agreement on strong international regulation of financial markets.

The draft communiqué for the meeting, which has been circulating for several days, includes a call for broader regulation of hedge funds and other financial firms and products but leaves unclear how strong international regulatory bodies would be in relation to national ones. President Obama is certain to resist any effort to include language that would suggest placing an international body in a superior position to US agencies. If Sarkozy were to make good on his threat, it is difficult to predict who would be injured.

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In 1961, a young American president made his first trip abroad to confront the major international issue of the day. History has judged that his perceived weakness on that trip led to serious troubles down the road. That chain of events has echoed through the presidencies of each man who has followed John F. Kennedy. It echoes today as President Obama prepares to make his first foreign trip since taking office. While the American press is playing up the G20 as a confrontation between American-style capitalism and a more social-democrat model, the Obama administration seeks to play down the drama by saying there is no need for all G20 leaders to agree on the specifics of recovery policies. However, there may be leaders at the meeting who see an advantage in setting themselves apart from the U.S. approach to recovery, in particular with regard to stimulus. If some seek confrontation, President Obama will be under pressure to push back and be perceived at home as having "stood up" to the world.

The potential for posturing at the G20 is increased by the fact that this is a one-day meeting. There will be no time for venting followed by a cooling off period and then a coming together around common goals. Each leader will walk into the meeting with a plan and the opportunity for adjustment during the day will be limited.

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On Thursday, U.S. Treasury Secretary Tim Geithner unveiled the Obama administration’s comprehensive framework for reforming the regulation of the financial system. The plan will be a hot topic ahead of next week’s G20 summit in London and is being closely scrutinized in capitals worldwide.

In his testimony yesterday before the House Financial Services Committee, Geithner told the panel,

“Our hope is that we can work with Europe on a global framework, a global infrastructure which has appropriate global oversight, so we don't have a Balkanized system at the global level, like we had at the national level."

He added that that the financial sector needs to be tightly regulated so that it can never again threaten the collapse of the wider economy.

Geithner said the administration is first focusing on systemic risk because the issues around it require the most global cooperation and will be at the center of the G20 agenda. Clearly, the Obama administration is moving towards a position that would enable substantive discussions with European leaders. Such discussions may result in new roles and powers for international organizations, including the Financial Stability Forum and the International Monetary Fund (IMF).

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Following a cautiously, positive welcome of the Obama Administration’s “toxic asset” plan to revive banking activity earlier in the week, the U.S. President yesterday evening delivered a speech that included comments on the G20 preparations. A few hours earlier, the French President Sarkozy had delivered a keynote speech with some striking similarities but also with a few, noticeable, differences.

President Sarkozy re-emphasized his statements from September 2008, which some observers at the time regarded as exaggerated, that the financial crisis is unprecedented in its scope, that nobody knows when or how it will end, but that the world will look different once it is over. He went on to underline that the crisis, in his government’s view, is both an intellectual and a moral one and that a more “moral” capitalism will have to emerge as result. Sarkozy, unsurprisingly, put government action and intervention at the center of the required policy response, which is not inconsistent with the Obama administration’s policy response.

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The Obama Administration has stepped up its preparation for the G20 summit next week by moving on two fronts—a plan to purchase toxic assets from banks and a new regulatory regime for financial products and companies. Taken together, these emerging plans appear designed to allow President Obama to come to London saying the U.S. has addressed the three major pillars of a recovery program—stimulus, bank rescue and regulatory reform .

Today's announcement by Treasury Secretary Geithner of the plan for toxic assets follows the broad outline he announced to poor reviews last month. The stock market's swoon after the previous Geithner announcement was blamed on the lack of detail he offered. Today, Geithner described how a program of up to $1 trillion to relieve banks of bad assets will be managed. Based on a public/private partnership concept, the Geithner plan allows for the participation of hedge funds and private equity funds as managers of portfolios of assets. Those managers will have the opportunity to make significant profits if they are successful in selling those assets back into a healthier market in the future. The government will also share in those profits. The reaction of the media and Congress to this plan bears watching. They will focus immediately on the issue of executive compensation for managers participating in the program and on the issue of allowing the very kind of firms that helped create the mess to make a profit on cleaning it up. Careful selection of managers will be crucial.

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Over the past months, the G20 has gone from being regarded as yet another over-sized talk shop with little clout to becoming one of the main vehicles for a global response to the crisis.

With stakeholders now hosting increasing and sometimes contradicting expectations, there is a risk that the summit will become a victim of its own success. However, even with an outcome that falls short of producing broad consensus on an all issues, significant progress will have been made if the result is the firm establishment of G20 as the primary, global forum to deal with the crisis.

The G20 preparations now involve the full range of international organizations, trade blocs and stakeholders. The British Government's Business and Enterprise Department and the Confederation of British Industry, the UK's largest business organization, co-hosted a special summit of business leaders from G20 countries—chaired by Lord Peter Mandelson, the Business Secretary—in London on March 18. Separately, the UK Financial Services Authority presented the long-awaited Turner Report with proposals that, if enacted, will introduce dramatic changes to the regulatory framework that governs the City.

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The G20 meeting is fast approaching and has become the single most important focal point for the global efforts to tackle the financial crisis.

The EU has sought to develop a common program for the G20 and to hammer out the main differences between diverging European interests. While nothing should be taken for granted, it seems plausible that the EU States will be singing from a common hymn sheet in London and that they will be defending a joint set of proposals. Their purpose appears to be to advance the cause of global regulation of financial markets.

The EU framework appears to be following the template laid out in the de Larosiere Report, to which we referred in last week’s international update. Following its publication—including 31 proposals providing a comprehensive set of concrete solutions for regulatory, supervisory and global repair action—the EU Commission reaffirmed that:

“the crisis has exposed unacceptable risks in the current governance of international and European financial markets which have proved real and systemic in times of serious turbulence . . . Market surveillance and enforcement of contractual and commercial practices will play an important role in restoring consumer confidence in retail banking.“

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In his visit to the White House this week, British Prime Minister Gordon Brown called for a global "New Deal" for financial industry regulation. While harmonization is always tricky across international borders, the outline of just such a new regulatory regime may have taken shape with the release last week of the long-awaited de Larosière report in Europe.

The analysis and recommendations outlined in the de Larosière report attempt to provide for a comprehensive view, and despite being quite drastic by many measures, most commentators seem to approve of the group’s recommendations. Some observers believe that the group should have gone even further.

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On both sides of the Atlantic, the looming deadline for the G20 Summit in London on 2 April is driving policymakers to come up with recommendations for global financial reform. The presentation of the de Larosiere “high level group,” which the EU commissioned and is headed by former French central banker Jacques de Larosiere, is now only a couple of days away from presenting its proposals for financial reform legislation. Expectations are that the proposals will be far-reaching. Observers regard the G20 meeting in Berlin over the weekend as part of the build-up of support for the proposals that many still may regard as controversial. The EU’s objective remains to create support for the proposals ahead of the G20 meeting.

At the meeting in Berlin, participants focused on the importance of transparency and accountability on the part of all financial market participants by affirming their conviction that all financial markets, products, and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile. They agreed this is especially true for those private pools of capital, including hedge funds, that may present a systemic risk. The meeting therefore called for appropriate oversight or regulation of these sectors in order to prevent excessive risk-taking and also agreed that credit rating agencies should be subject to mandatory registration and oversight.

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While the results of the G7 meeting in Rome may have been disappointing to some, due to a communiqué light on substance, it can be argued it made a step in the right direction in combating protectionism. The communiqué included this statement:

"An open system of global trade and investment is indispensable for global prosperity. The G7 remains committed to avoiding protectionist measures, which would only exacerbate the downturn, to refraining from raising new barriers and to working towards a quick and ambitious conclusion of the Doha Round.”

 Another development at the meeting was the apparent softening of the German government's attitude about "bailouts" of euro-bloc nations needing to refinance debt. Whereas German Finance Minister Peter Steinbreuck said before the G7 meeting that Austria would have to solve its own problems, Steinbreuck's post-G7 statements appear to open the door for assistance to Austria as well as Ireland and Greece, who may also soon need help.

The EU states are now working hard to find a solution that would essentially be a preemptive de facto bailout, bearing in mind the legal limitations of the EU Treaty which has a "no bailout" clause. A common EU policy on state and bank bailouts would constitute a huge leap forward for EU integration.

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The list of “make or break” events taking place in the EU and in the United States this week to address the financial crisis is long, and the number of disagreements over appropriate policy responses is even longer. In the EU, accusations of increased protectionism and other forms of unilateral action that will benefit some at the expense of others are flying.

The high price that the EU has to pay for not having a permanent and stand-alone Presidency became apparent again this week. A permanent EU Presidency would be more disconnected from the Member State Governments, as opposed to the current rotating six-month presidencies that are inherently biased on basis of national preferences. The Czech EU Presidency has summoned leaders to Brussels because of the rising risk of protectionism and economic nationalism. The Czech Prime Minister, Mirek Topolánek, reportedly cited in particular “protectionist steps and statements” on the part of French president Nicolas Sarkozy, a reference no doubt to his government’s recent announcement to provide new financing to French car makers. The call for a summit is only the most recent step in the political sniping between Paris and Prague and has been a feature of this Presidency even before it began, when President Sarkozy suggested that perhaps the Czechs should be bypassed in favor of the extension of the French term.

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If the World Economic Forum in Davos was supposed to be an indicator of the progress that politicians, regulators, and corporations can make in coalescing around a common, global, and coherent response to the crisis, then observers may be forgiven for being low on optimism at present.

The annual Davos events have become perhaps the most important gathering of world leaders and decision-makers that take place outside the sphere of traditional diplomacy and international organizations. Non-private gatherings, like the G20, normally lend themselves to more carefully coordinated and rehearsed declarations and conclusions for the governments involved. The Washington G20 meeting in November was widely regarded as a success in terms of the involved governments being able to agree on a common roadmap to address the financial crisis and also managing to communicate their agreement successfully. The value of such displays of unity cannot be underestimated when the deterioration in the economy continues to accelerate.

Davos, on the other hand, created an impression that the weakening economic outlook is putting a strain on states’ commitment to the Washington accords, putting in doubt the viability of the whole process. It will therefore be important for leaders to carefully manage the road to the G20 summit in London on 3 April, at which a large number of concrete and global measures normally should be adopted to tackle the crisis.

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This week, more than forty heads of state are meeting in Davos, Switzerland for the annual meeting of the World Economic Forum. The title of the deliberations is forward looking, although unclear how exactly HOW forward looking: "Shaping the Post-Crisis World.” No doubt, the proposals for financial regulatory reform discussed on these pages in the past weeks will be on the Davos agenda.

On both sides of the Atlantic, those working on getting financial markets out of crisis and those planning for the post crisis world are dealing with fundamental structural issues surrounding monetary policy, fiscal policy, and market regulations. While the emphasis points shift depending on time and location, significant issues are in play in European capitals and in the United States and those issues overlap in myriad ways.

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The flow of substantive input regarding the global financial architecture continues. While the recommended actions differ, most commentators concur that action is urgent and reform should be sweeping.

On 15 January, the Group of 30, chaired by Paul A. Volcker and comprised of leading policy-makers and business leaders from across the globe, issued the Framework for Financial Stability—a set of 18 recommendations for financial reform, including that:

• “In all countries, the activities of government-insured deposit-taking institutions should be subject to prudential regulation and supervision by a single regulator (that is, consolidated supervision).”
• “Gaps and weaknesses in the coverage of prudential regulation and supervision must be eliminated. All systemically significant financial institutions, regardless of type, must be subject to an appropriate degree of prudential oversight.”
• “In general, government-insured deposit-taking institutions should not be owned and controlled by unregulated non-financial organizations, and strict limits should be imposed on dealings among such banking institutions and partial non-bank owners.”

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In the past days, more leading stakeholders have added their voices to the chorus arguing for a strategic re-design of global financial markets regulation.

On 9 January, the President of the European Central Bank, Jean-Claude Trichet, spoke at a conference organized by the French Government, which also featured President Nicholas Sarkozy, German Chancellor Angela Merkel, and former British Prime Minister Tony Blair among its speakers. Trichet, speaking on the topic of “A Paradigm Change for the Global Financial System,” provided a scathing assessment of the failures of the financial system, not too dissimilar to that of Willem Buiter. Trichet remarked:

“The current crisis stands out because it is affecting the heart of the global financial system. Its root cause was a widespread undervaluation of risk in the global financial system, especially in the most advanced economies. This included an underestimation of the quantity of risk financial institutions took upon themselves and an under-pricing of the unit of risk. Risk was under-priced because, among other things, financial market participants largely extrapolated ongoing trends and the very low levels of volatility in financial markets and in the real economies going forward. “

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In spite of the holidays and new year celebrations, financial sector events have continued to unfold unremittingly, forcing EU policy makers to consider policy readjustments, yet again.

The scandal surrounding Bernard L. Madoff Investment Securities LLC, the financial implications of which are global and yet to be fully discovered, is one of the most recent examples. No doubt, Madoff will give those supporting new financial regulation and oversight the upper hand in reform discussions just as Enron provided carte blanche for those promoting the Sarbanes-Oxley legislation, and its EU siblings, a few years ago.

One of the calls for new, drastic, financial reform—more difficult to argue against in a post-Madoff environment—comes from the distinguished Financial Times columnist Willem Buiter. In a recent speech, Buiter provided a damning analysis of the shortcomings of the financial system and also provided his recommendations for the appropriate policy responses. It would have been less surprising if these radical proposals had emanated from outraged elected officials, rather than from a professor of political economy at the London School of Economics.
 

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The EU leaders’ meeting on 12 December delivered results on all the main agenda items, including the stimulus package to counter the economic recession and the energy/climate legislative package intended to substantially reduce carbon dioxide (CO2) emissions and demonstrate global leadership.

The European Economic Recovery Plan, described by many observers as not aggressive enough, provides a framework for action to be taken at the EU level as well as for measures adopted by each Member State, taking account of their individual circumstances. It is based on an effort equivalent in total to approximately 1.5 percent of the EU’s gross domestic product (GDP) and also envisages the initiation of priority action to enable the EU economies to adjust more rapidly to current challenges.

The Plan will thus largely be implemented by the individual Member States according to national preferences, which may render it less effective than if the states were to work in total concert. The appetite and capacity for fiscal stimulus at this point in time varies among EU countries, with, for instance, Germany dragging its feet and going against the views of many economists, including this year’s winner of the Nobel Prize in Economics, Paul Krugman. Some reports say that Italy’s stimulus plan actually is negative because it includes more tax hikes than measures to stimulate the economy.

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EU leaders will meet later this week for their bi-annual meeting signalling the end of the French EU Presidency.The meeting will allow the Prime Ministers and Heads of State to take stock of progress in fighting the financial crisis and to prepare for the G-20 meeting to be held in London on April 2, 2009.

In preparation for the EU summit, Member State finance ministers met this week and agreed on a common framework for providing government assistance to banks. While each state will design its own package of assistance, there are EU rules that could stand in the way of certain forms of aid. Relaxing these rules is an important goal for the finance ministers. At the same time, it is important to many of the ministers to ensure government assistance doesn’t penalize healthier banks.

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Regulation seems to be dominating the agenda in Europe. The EC Commission on 1 December made a sudden shift in policy when it announced that it is fast-tracking a review concerning new regulation for important sectors of the financial industry, including hedge funds, private equity firms, and derivatives.

Heeding the mounting criticism of a laissez faire attitude and for being asleep on his watch, the EC Commissioner in charge of banking, financial services and securities legislation, Charlie McCreevy, in a speech before the European Parliament presented a number of initiatives that could lead to new and far-reaching regulation of several sectors of the financial markets.

McCreevy defended his track-record by pointing to the significant number of legislative measures introduced during his tenure. The exchange in the European Parliament confirms the drastic change in philosophy among regulators where success now is measured by the number of initiatives for regulation introduced, a trend that most probably will continue into the foreseeable future.

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The European Commission is due to unveil on Wednesday, 26 November, a proposal for how the EU should address the economic crisis financially, including probably a suggestion that Member States contribute about one percent of the bloc's gross domestic product to fund stimulus measures, including for the auto industry.

The EC Commission will call for "a coordinated fiscal stimulus, based on member states taking measures suited to their own economic situations". The package will thus be financed out of the States’ budgets and will have to be within the boundaries of the EU Stability and Growth Pact limiting national budget deficits. However, it will be permitted to use the Pact’s full flexibility, a signal that high deficits will be tolerated in the short term. "Overall, it's about €130 billion that are to be deployed," according to the German Finance Minister, Peer Steinbrueck. This is an amount superior to the EU's annual budget, which is about €110 billion. "Everyone is to fulfill the one percent target," Steinbrueck added. A decision on the precise nature and amount of the package will be determined by EU heads of states and government during a summit in Brussels on 11-12 December.

By contrast, China’s recently announced $586 billion stimulus package is 14 percent of the country’s estimated 2008 GDP. If the United States were to commit to a stimulus package valued at 1 percent of its GDP, it would amount to approximately $138 billion.

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The G20 meeting in Washington, DC did what it was supposed to do—it constituted the starting point for a process to re-model the global financial architecture unanimously supported by the attending nations. By expanding the group of countries present to 20, the organizers managed to include all leading and emerging economies in the process. This will no doubt become important during the ensuing efforts to achieve global legitimacy for the process.

The German Chancellor Angela Merkel after the meeting reported that, "Over the next 100 days the G20 states intend to take about 50 emergency measures…The action plan adopted in Washington contains important steps that should lead to a global economic order and thus ensure an international dimension of the social market economy."

These views, as expressed by the German leadership are broadly representative of the European view. On 17 November, the UK Prime Minister reported back to the House of Commons along similar lines, emphasizing that:

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The G20 summit on November 15 produced some worthwhile results and set the table for ongoing work in a number of areas.

Perhaps the most interesting outcomes were two that do not necessarily bear directly on the financial crisis, but which speak to underlying issues that need to be addressed going forward. First, to address mounting fears that protectionism may start to creep in to the policies of some countries, the G20 agreed that none of its members would take protectionist steps in the next 12 months. Second, the summiteers agreed to look for ways to re-capitalize the International Monetary Fund (IMF) and to give developing countries more of a role in its governance, thereby reducing the role of Europe.

The leaders agreed that transparency in the markets is important and that monetary and fiscal policy should be used "as appropriate" to stimulate economies while the governments continue to work on re-establishing financial stability.

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With the G20 meeting in Washington, DC (also dubbed “Bretton Woods II”) only a couple of days away, world leaders are working to maintain a balance between managing excessive expectations and scrambling to develop consensus solutions that will allow them to claim at least limited success. While the organizers of the original Bretton Woods meeting in the early 1940s had the luxury of abundant time to develop the blueprint for the world’s financial architecture, present summiteers are squeezed between rapidly falling markets and, at least in the United States, a political power vacuum. President-elect Barack Obama will not attend the summit, nor will he meet with any of the world leaders separately. The Obama transition team has provided few details other than to say the president-elect’s aides will attend the summit and may meet separately with some of the foreign representatives over the weekend.

Several European stakeholders have in the past days issued their suggestions for the development of a new global financial architecture, many of which no doubt will impact the final outcome. The EU leaders met on 7 November and agreed to a common position for the G20 meeting, outlining actions to be implemented within 100 days, starting this Saturday:

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The election of Senator Barack Obama as the 44th President of the United States casts a new light on transatlantic and international policy, politics, and commerce. While it is too early to discern the policies he will pursue in many areas of international affairs, it is clear the tone coming from Washington will change.

This change may be felt most immediately in the preparations for the G-20 summit on international financial market regulation called by President Bush for 15 November in Washington. The meeting comes at an awkward moment and President-elect Obama is faced with the difficult decision of whether or how to participate in the event. International leaders who will attend face the equally difficult decision of how to engage with the Obama team while they are in Washington.

Even before the election occurred in the US, EU leadership began intense contacts to hammer out the EU’s negotiating position on the future of international financial architecture. The proposal includes some far-reaching measures for new and further regulation of financial markets that, if enacted, would constitute a break with existing philosophy.

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