In its Presidency note (PDF) published on Friday, 31 October 2008, the French presidency starts with complimenting the work of the European Union:
[T]he European Union displayed decisive leadership. It should remain proactive and ambitious so as to enhance the present financial architecture, in international fora and dialogues, as well as in the prospect of the Summit called for by our Heads of states and governments.Then, it continues with the list of principles that the international financial architecture should follow:
- Ensure that our frameworks are not excessively biased towards the short-term
- Ensure increased responsibility of all the financial actors, notably along the credit chain,
- Work towards properly enforced and extended transparency on all the segments of financial markets
- Ensure more consistency across standard setters and across regulatory and oversight frameworks with a common aim to promote financial stability
- Better anticipate risks and appropriate risk management based on an enhanced cooperation between institutions
- Strengthening and broadening the scope of global oversight of financial markets
- Promoting a global approach of risks
- Reinforcing the legitimacy of the global financial architecture so as to better promote coordination and crisis prevention
- Addressing global challenges of the 21st century
On the last page of the document, the French EU-Council Presidency proposes 11 possible commitments EU leaders could (!) agree on during their informal meeting on 7 November.
These draft commitments would then be proposed to the G20 world financial summit in Washington on 15 November:
- Increase transparency on financial markets and take the necessary steps not to let any financial institution, market or jurisdiction outside the scope of regulation or oversight
- Submit rating agencies that provide public ratings to registration and to governance rules and to appropriate monitoring of their activities
- Draw up codes of conducts to address incentives to excessive risk taking in the financial industry, including through compensation schemes
- Reconsider accounting and prudential standards where necessary to improve their mutual consistency, facilitate coordinated supervision and control, raise the margins of safety of the system and mitigate pro-cyclical effects
- Regarding capital adequacy standards, harmonising capital definition to ensure an homogenous quality of capital
- Promote proper risk-magement incentives regarding securitization, including considering the impact and effectiveness of requiring originators to retain a share of their issuances
- Reinforce cross-border cooperation between supervisors and regulatory authorities, especially to oversee activities of cross-border groups
- Promote a change of culture in the governance of financial institutions towards sustainable value creation. Risk control mechanisms in financial institutions should be enhanced and placed under direct responsibility of senior management, notably to prevent significant operational incidents in market operations
- Review improvements in liquidity risk management and promote a consistent approach for cross-border groups
- Encourage an internationally coordinated response to the macroeconomic challenges to come
- Formulate concrete solutions to improve the international economic governance
Taking into account the results of previous European Councils, we will end up with two or three main commitments and some weaker conclusions. Additionally, a number of working groups might be proposed, leaving results open.
On 15 November at the World Summit, these will be further watered down, and instead of commitments we will get conclusions of good will, non-binding, leading to further discussions that will bring results long after the crisis or way too late to have any influence on its outcome.
But the heads of states and governments will sell it as a big success - some will say they saved the market economy, others will tell their populations they contained the ambitions of uncontrollable markets.
Standard procedure. So, I am really looking forward to the evenings of November 7 and November 15...