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Last updated: June 11, 2008 8:14 am
Continental Europe should take the lead in devising new rules for financial markets because the Anglo-Saxon model of regulation has failed, Angela Merkel has told the Financial Times.
The German chancellor said ahead of next month’s Group of Eight summit, which is expected to discuss new regulation, that the largely “Anglo-Saxon” organisation of financial markets undervalued the growing weight and importance of the eurozone.
In particular, she called for a European credit ratings agency to counterbalance the dominance of Moody’s and Standard and Poor’s. “Europe has developed a certain independence thanks to the euro,” she said. “But . . . in terms of the rules, the transparency guidelines and the entire standardisation of financial markets, we still have a strongly Anglo-Saxon-dominated system.
“I think that in the medium term Europe will need a working ratings agency because the robust currency system of the euro has not yet secured sufficient influence over the rules governing financial markets.”
A European ratings agency is among several suggestions Germany has made in the G8 leading industrial nations as part of a proposed overhaul following the credit squeeze.
Berlin also wants to ban the agencies from rating products they helped to create. Ms Merkel said she would welcome new capital adequacy ratios for banks, linking the amount they must put aside to the level of risk in their asset portfolios.
“We need to think about the relationship between capital and risk,” Ms Merkel said. “But these rules can only be discussed at an international level."
She refused to endorse remarks by Horst Köhler, the German president, that international financial markets were a “monster” but scolded bankers for creating, selling and buying structured products they did not fully understand.
“Compared to industry, where people have a deep understanding of the products they deal with, financial markets are a lot more opaque. That has to change so that a country like Germany, which still produces a lot of industrial goods, does not have to carry the economic risks.”
Ms Merkel also indirectly criticised Josef Ackermann, the Deutsche Bank chief executive, who said he no longer believed in the “self-healing force of the market”. She warned that the backlash against the banks must not be hijacked by opponents of free trade: “We should not give protectionism an open flank.”
The chancellor praised the euro as having allowed the economy of the EU to partially decouple from the US, at least in the industrial goods area if not in financial markets, and reaffirmed her support for the independence of the European Central Bank.
“If we decide to subject the actions of the ECB to political contingencies, there will always be one or several countries with good grounds to influence the ECB. I say beware: we need crystal-clear principles or we will shake confidence in the euro.”
Unlike President Nicolas Sarkozy of France, she played down the economic risks to the eurozone of the currency’s rapid appreciation against the dollar, saying that it had partially cushioned the increase in oil and raw material prices.
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