By Jonathan Stearns and Jennifer Freedman
Oct. 23 (Bloomberg) -- The European Union stepped up calls for an overhaul of the global financial system, saying the world economy faces ``major imbalances'' that require a coordinated response with the U.S. and Asia starting at a summit next month.
``The current model of financial regulation and supervision needs to be revamped at international level,'' Jose Barroso, president of the European Commission, the 27-nation EU's regulatory arm, said today in Beijing. ``It is very simple: we swim together or we sink together.'' Barroso is due to attend a two-day meeting of European and Asian leaders in the Chinese capital beginning tomorrow.
The EU aims for a reordering of the financial system to prevent a repeat of the credit crunch that is causing a global economic slowdown. World leaders will meet Nov. 15 in Washington to assess the crisis at the urging of the EU, which has floated ideas including more bank supervision, stricter regulations on hedge funds and new rules for credit-rating companies.
The decision to hold the summit in Washington follows a yearlong credit squeeze that has toppled banks including Lehman Brothers Holdings Inc., forced coordinated interest-rate cuts by leading central banks and prompted U.S., European and Asian authorities to shore up banks with trillions of dollars and to consider economic-stimulus measures.
``The idea is to launch a process,'' Barroso said. ``The basic aim is to set some principles, to start a discussion on these principles.''
Global Differences
The EU campaign threatens to expose differences with the U.S. and other countries over global financial governance. That may provoke tensions and bog down talks while individual countries continue to act on their own to limit the fallout.
The credit crisis is choking off money to companies and people, undermining business and consumer sentiment. Economists at Deutsche Bank AG expect the Group of Seven economies to contract 1.1 percent next year, the worst since the Great Depression, and global growth to be the weakest since the 1980s.
``If someone thinks the effects of this crisis can be avoided, it's completely wrong,'' Barroso said. ``It started in the U.S., but it is becoming global. We're already seeing the ripple effects.''
Asian stocks slumped today, driving the region's benchmark index to the lowest level in four years, as Japanese exports missed estimates, commodities prices tumbled and South Korea's worst financial crisis in a decade deepened.
Seeking Chinese Support
Barroso said he would seek Chinese support for new financial rules in meetings with President Hu Jintao and Premier Wen Jiabao.
``I hope our Asian partners will contribute to this reform,'' he said. ``I really think China has a word to say.''
The Chinese government said it takes proposals on changing global financial rules ``seriously'' and stressed that emerging economies need extra help.
``Developing countries are especially vulnerable to the financial crisis and their concerns deserve special attention,'' said Chinese Foreign Ministry spokesman Qin Gang.
Barroso highlighted the strengths of China, the world's most populous country and fourth-biggest economy, and said changes could involve giving the Chinese greater weight in institutions such as the International Monetary Fund.
Meanwhile, the Brussels-based commission will come forward with proposals ``relatively soon'' to help support the EU economy, he said without elaborating.
Last week, French President Nicolas Sarkozy said European governments would look at offering loans to help carmakers switch to cleaner technologies and offset any competitive edge that U.S. government-backed loans may give to American automakers.
And earlier this week, Barroso said European support for businesses could embrace other ``key'' industries such as construction.
To contact the reporters on this story: Jonathan Stearns in Beijing at jstearns2@bloomberg.netJennifer Freedman in Beijing at jfreedman@bloomberg.net
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