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Last updated: June 29, 2009 9:37 am
Flawed markets and fundamental weaknesses in the world economic system demand adoption of a “global standard” of norms and principles and a return to ethics in business, according to finance ministers from the Group of Eight club of rich countries.
In a 66-page report expected to be endorsed by heads of government at next week’s G8 summit in Italy, ministers agree “a rethinking of the framework of the global economic and financial system is critical”.
“A set of common principles and standards governing international economic and financial activity is an essential foundation for stable global growth,” the report says, laying out the proposed Lecce framework, named after the baroque Italian city where the ministers met this month.
The report, seen by the Financial Times, recommends the “global standard” cover such areas as executive pay, corruption, banking, corporate governance, taxation and markets.
With voters angry at bailing out companies seen as victims of their own reckless greed, and some government officials under fire for their lack of standards, the moralistic tone captures a newfound interest in the importance of ethics.
Economic freedom had not been matched by respect of fundamental norms of “integrity and propriety”, the report says, calling for a strengthening of “business ethics and investor protection” as well as transparency.
“It is widely accepted that the pursuit of excessive risk aimed at boosting short-term profits contributed to the financial market downturn and subsequent global recession.
The disconnect between management compensation and company performance has led to a public outcry as taxpayers have been asked to finance private sector bailouts.”
Debate over the proposals has mirrored G8 divisions, with the “Anglo-Saxon” economic model blamed by continental Europeans for creating the global credit crisis through a lack of supervision and regulation. However, initial efforts to impose legally binding codes, backed by Giulio Tremonti, Italy’s finance minister and an architect of the Lecce process, appear to have been blocked.
Italy, as holder of the G8 presidency, is working closely with Germany and the Organisation for Economic Cooperation and Development to expand the initiative beyond the G8. The process is being linked with Chancellor Angela Merkel’s proposed Global Charter for sustainable economic activity, which is to be discussed by the broader G20.
The task of drawing up specific recommendations will be left mainly to institutions such as the OECD, the International Monetary Fund and the Financial Stability Board which have already pioneered such work.
The G20 summit in London in April broadened the mandate of the FSB, and 35 ministers attending an OECD council meeting last week endorsed the organisation’s involvement in the Lecce Framework and Ms Merkel’s Global Charter.
“Previous efforts to address issues of propriety, transparency and integrity have suffered from poor implementation, despite multilateral agreements on particular initiatives,” the report warns. On compliance, it recommends an “internationally agreed comprehensive framework to strengthen and monitor compliance and foster peer pressure”.
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