G20 leaders craft crisis response

A communiqué drafted for release at a G20 summit in London, obtained by Reuters, signaled that leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up International Monetary Fund, or IMF.

However, there was still debate over enhanced funding for the IMF to tackle crises in emerging economies, precisely how to police tax havens and the amount of money to boost trade.

G20 leaders were preparing a major expansion in resources available through the IMF, possibly including a tripling of its war chest to $750 billion, officials familiar with negotiation of the issue said.

The draft included a pledge to deliver "the scale of sustained effort necessary to restore growth" without making any commitments beyond the trillions being spent to stabilise banks, shore up demand and limit job losses.

Keen to secure a confidence-boosting message for voters and frazzled financial markets as the world succumbs to recession, U.S. President Barack Obama said there were no substantive differences with Europe, despite the hardball stances taken by the French and German leaders.

Washington wanted tougher regulation too, Obama told a news conference on Wednesday with Britain's Gordon Brown, summit host, saying he was at the summit not just to lecture but to listen and to help lead the way out of trouble.

It was not clear whether the flashpoint, which appeared to focus primarily on Sarkozy's demands for blacklisting of tax havens, would be enough to derail a message of unity.

"The most important issue is that we agree ... on the principle that no financial market product, no financial market participant and no financial market can remain without regulation and without supervision," German Finance Minister Peer Steinbrueck told Deutschlandfunk radio from London.

Not enough

World stock prices, battered by the crisis for months, have recovered some of the lost ground in the last month, but analysts were skeptical whether Thursday's communiqué would generate much more optimism.

"People will look at this and it won't inspire confidence in financial markets," Colin Ellis, European economist at Daiwa Securities, said of the draft communiqué.

"Everyone knows there is a lot of friction behind the scenes and while that exists there will be doubts about the sustainability of any recovery."

The global economy is expected to shrink more in 2009 than any year since World War Two, dropping between 0.5 and 1.0 percent, according to the International Monetary Fund, whose head, Dominique Strauss-Kahn, is calling it a "Great Recession".

The International Labour Organization says the crisis could cost 50 million jobs by the end of the year.

"They are not yet moving quickly enough in doing the cleaning up of the financial system," the Financial Times' front page quoted Strauss-Kahn as saying on Thursday.

Police said one person died during protests on Wednesday which saw several hundred demonstrators clash with riot police and bank windows smashed in London's financial centre.

A police source said it was likely the man died from a medical condition although that would not be confirmed until a post-mortem.

More protests were planned for Thursday, the main day of a summit involving the world's biggest economies, developed and up-and-coming, in all accounting for more than 80 percent of world trade and economic output.

The draft communiqué contained a pledge by the G20 nations to allow "candid, even-handed and independent" surveillance of their economies and financial sectors by the IMF.

It also unveiled a Financial Stability Board to work with the IMF to identify economic and financial risks and measures needed to address them, revamping an existing body called the Financial Stability Forum.

Mobilizing trillions

The G20 leaders hope around two trillion dollars governments are pumping into the economy in tax cuts, building projects and green investments, according to summit host Gordon Brown, will limit the depth and duration of recession and maybe create 20 million or so new jobs.

But Paris and Berlin, fearing the summit would fall short of the mark on regulation of tax havens, hedge funds and markets in general, went in gunning for concrete announcements.

"Any regulations we don't agree here, won't be agreed for the next five years," Merkel told a joint news conference with her French counterpart on Wednesday. "The summit is not about horsetrading between regulation and economic growth programs."

"In the results, we want the principle of new regulation to be a major objective ... This is not negotiable," French President Nicolas Sarkozy added.

Obama, making his first official visit to Europe, said G20 nations were not going to agree on every point but brushed aside suggestions the summit would falter because countries were split over the importance of regulation versus new stimulus packages.