US/Europe Take Steps Toward Unified World-Wide Financial Reform
Following the tremendous and intricate economic recession that has shaken the world for the past few years, it is evident that world-wide financial reform is necessary. The United States and Europe are working together towards such reform. Treasury Secretary Timothy Geithner spoke from Berlin saying that the U.S. and Euorpe are in "broad agreement" on the need for tightened market regulation, conceding that different paths might have to be taken to achieve such regulation.
Geithner's recent trip to Europe included stops in London, Frankfurt, and Berlin and meetings with George Osborne, the British chancellor of the Exchequer, Jean-Claude Trichet, president of the European Central Bank, and Axel Weber, president of Germany's central bank Bundesbank. The trip was designed to narrow in on how the U.S. and Europe can agree on a framework for market regulation before the Group of 20 summit meeting in Canada next month.
“I think we’re in a very good position to reach agreement on a global framework that works,” Mr. Geithner said, adding that the U.S. and Europe are in agreement on the importance of establishing more conservative approaches to taking risk. Still, conflicting opinions linger. For example, Germany has been at odds with many other countries over its plans to introduce a ban on naked short-selling of sovereign debt securities and financial shares; a move with regulators from other European countries have not replicated. Short-selling is used by some investors to bet that a share or security will fall in price. Naked short-selling is the term applied when investors make such a bet without actually having control of the shares.
European Union commissioner for the internal market, Michel Barnier, proposed that banks be required to pay a levy to create a fund that would be used to wind down sick banks during a financial crisis. America, Britain, and France instead prefer that the money go into general coffers.
Currently, G-20 nations are working to reach a consensus on new rules to avoid "regulatory arbitrage" where some banks or hedge funds move their activities to locations that offer loose oversight. Many also agree that banks should be required to hold more capital in reserve during high times so they can remain resilient in the event of future financial crises. Still, there are many details over which no agreement has yet been reached.
German finance minister, Wolfgang Schäuble is reportedly ready to introduce a German or European Union-wide financial activity tax or financial transaction tax if attempts at a coordinate approach are unsuccessful at the G-20.
The European Union has chosen to offer loan guarantees of 750 billion euros for governments in danger of defaulting on debt. Meanwhile, many countries, including Germany, Spain, Portugal, and Italy, announced plans to reduce budget deficits through the introduction of cutbacks across the public sector. Geithner supported such moves under the condition that the U.S. and Europe continue to work together to ensure that "we are strengthening and reinforcing the global recovery.”
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