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Summit of Financial markets and the world Economy. World hopes G20 summit will find solution to financial crisis… The problem : what is regulation ?

World hopes G20 summit will find solution to financial crisis… One problem is : what is regulation ?
Professor Herve CAUSSE (France)

Created in 1999, this Group of 20 (G20) countries represents 85 percent of the world economy and about two-thirds of its population (its members are
the United States, Germany, Japan, France, Italy, Britain and Canada, the
European Union, Argentina, Australia, Brazil, China, India, Indonesia,
Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey ; Spain
and the Netherlands have also been invited).

"The summit will have concrete results. You can take this as guaranteed,"
a senior official of a European G20 country said. Three principles are
fixed : stimulus efforts, reform of financial regulation and global
governance changes. We are now waiting for an official communique.

Discussions have hidden a big problem. What is regulation ?

The word is ambivalent on the both sides of Atlantic. The summit – and
officials too – hide the difficulty.

President OBAMA wants to adopt a economic plan – although he is no
attending the summit.

On the contrary, French President Nicolas Sarkozy, who will be
representing the EU at the summit, has said that he is not going to
participate in the meetingfor a “polite conversation” on the
financial crisis. He wants to make sure such a crisis never happens again.

Indeed, unfortunately, we can expect a classic « communique promising to
continue international cooperation in order to solve financial crisis"
said Peter Morici (an economist at University of Maryland School).
He also added : "Europeans have unrealistic expectations," "Here there is no
push for European-style regulation that would lead to 10 percent
unemployment and one percent growth rates."

President Busch said that the world's capitalist system is the best solution.
The results tend to show that the economic approach is wrong. We need a « financial
constitution », because monetary power is a reality, underlined by central
banks functions all over the world.

In any case, the meeting is curious. One summit, three problems !?

The Washinton summit can help world to maintain its growth or, at least,
to avoid a big recession (and we have to say that this uninamous way would
give a new inflation).

The communique can also involve proposals for a new world financial order ; but it will take two years at least to conduct these reforms. In any
case, IFM – or another organization – will not overlook the whole
financial system…

The third problem is to have a definition of regulation . USA do not want
to follow european regulations ! But we don’t know what is regulation ! We
can quote ten definitions ! We can indentify ten financials sectors (or
markets) ; in each case, regulation have a specific meaning !

European and french banks are involved in each financial market or
financial activity, included internationals CDS’s / CDO’s markets. Their
(contractual) liberty is very large. Of course, for example in France,
credit contracts can’t allow subprimes loans (banks are liable if
loanners’ reinbursements are unrealistic or impossible) ; so, our system
is better than the american’s one. Is it a question of regulation or a
question of private law ?

We have to underline these aspects ; in Europe a strong movement considers
that regulation is a way of financial governance (or economic governance),
probably inspired by Independant Agencies (as the SEC, or the AMF in
France). This regulation is dominated - in my opinion - by
professionnals’ opinions (technicals rules result of a dialog between
banks and financials institutions and securities commissions…). This
expensive system of regulation doesn’t work.

So we have certainly to adopt, now, statement regulation, because of the
actual turmoil regulation. In this way (in civil law countries, in Europe),
we have no need of « regulation ». We need statutory laws and european rules (EEC).

Stop regulation for a true regulation !

Dimanche 16 Novembre 2008
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