G-20 leaders hope some agreement on actions to reduce the risk of further crises can be found at the extraordinary summit, which begins with a working dinner Friday, followed by closed-door meetings on Saturday.
Along with the United States, France, Britain and other top industrial powers, the summit also will include leaders from developing economic powers such as Russia, China, Brazil and India.
“We cannot expect a miracle from this summit, which was Europe’s idea, but will rather see the beginning of a process that will create a finished program in 100 days,” European Commission president Jose Manuel Barroso said an interview with a German daily published Friday, according to the Agence France-Presse.
During a speech Thursday at the Manhattan Institute in New York, President Bush said “reforms in the financial sector are essential” but also warned that “government intervention is not a cure-all,” the Wall Street Journal reported.
“It is true that this crisis included failures — by lenders and borrowers, by financial firms, by governments and independent regulators,” the president said. “But the crisis was not a failure of the free market system, and the answer is not to try to reinvent that system.”
Mr. Bush outlined a few reform priorities he is likely to discuss at the summit, including greater transparency in financial markets and enhanced national regulation of global financial institutions.
Some G-20 leaders, such as Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have promoted greater government regulation in the face of economic downturns in their countries. According to the Wall Street Journal, the group will debate proposals such as curbing executive pay rates, restraining hedge funds and raising capital requirements for banks.
The Europeans also want to close loopholes that allow some financial institutions to evade regulation, and ensure supervision for all major financial players, the Associated Press reported.
“There is a need for urgency. By acting now we can stimulate growth in all our economies,” British Prime Minister Gordon Brown said in New York. “The cost of inaction will be far greater than the cost of any action.”
The Washington Post reported Friday that one proposed measure would create a new “college of supervisors” to supervise the regulation of the world’s largest global financial institutions.
International economist Alex Patelis said increased regulation is inevitable.
“In recent years, investors could, broadly speaking, ignore the role of government when thinking about markets,” he said, according to the Wall Street Journal. “That period is over.”
Several other moves emerged ahead of the summit’s start. Among them, a White House group has strengthened oversight of financial tools such as derivatives and credit default swaps that have been named as key contributors to the financial crisis.
The International Monetary Fund and the Financial Stability Forum said they would cooperate on conducting “early warning exercises” to detect vulnerabilities in the global financial system, the AP reported.
With continued volatility in U.S., European and Asian markets — led by the crumbling of the U.S. housing market and shakeups over soured mortgage related assets — some leaders are looking to take a larger role in the world’s economic restructuring.
France’s Sarkozy — whose country holds the rotating European Union presidency — said ahead of the meeting that the U.S. dollar “can no longer claim to be the only currency in the world.”
“I am leaving for Washington to explain that the dollar, which after the Second World War was the only currency in the world, can no longer claim to be the only currency in the world,” Sarkozy said, according to Reuters. “What was true in 1945 cannot be true today.”
President Bush’s deputy national security adviser for international economic affairs called it “grossly inaccurate” to assume the United States is not taking a solid lead on the issue of economic reform.
“We are no less committed to fixing the problems, and addressing regulatory and other deficiencies, than any other leader,” Dan Price said, according to the AP.
President-elect Barack Obama, who takes office on Jan. 20, won’t attend the summit. However, he has authorized former Iowa Rep. Jim Leach, a Republican, and former Secretary of State Madeleine Albright, a Democrat, to represent him at the meeting.