Pat Dollard

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“The world changes. We are in the 21st century and the view is that we cannot continue into the 21st century with a system (established) in the 20th century,” Sarkozy said Thursday.

Agencie France Presse:

Deepening recession and divisions over how to tackle the global financial turmoil increased pressure on world leaders Friday ahead of a summit of more than 20 of the richest nations and emerging countries.

Although US President George W. Bush has made an impassioned defence of the free market, critics from the rest of the world headed for Washington seeking strengthened regulation and other radical changes in the financial system.

Before the White House dinner that launches the summit discussions, the European Union announced that the 15 nations in the eurozone were now gripped by recession — two quarters of economic contraction.

Bush said Thursday that the world leaders have a clear aim “to lay the foundation for reforms that will help prevent a similar crisis in the future.”

“Our aim should not be more government. It should be smarter government,” he said. It would be “a terrible mistake to allow a few months of crisis to undermine 60 years of success.”

“Many European countries had much more extensive regulations and still experienced problems almost identical to our own,” he said. “We must recognize that government intervention is not a cure-all.”

But leaders from the European Union, Russia and other emerging nations want increased control of financial markets.

And France and Russia have made hard-edged remarks about reviewing the role of the dollar, but Japan says it will argue for retaining the US currency as a main pillar of the global system.

Russian Dmitry Medvedev said Thursday that the economic crisis would require “reform of the international financial system and its great institutions, the International Monetary Fund and the World Bank.”

He discussed his proposals Friday with EU leaders and President Nicolas Sarkozy of France who has called for the creation of “regulated capitalism”.

“The world changes. We are in the 21st century and the French view is that we cannot continue into the 21st century with a system (established) in the 20th century,” Sarkozy said Thursday.

The crisis broke out one year ago when the US real estate market went bust and swamped the financial sector with bad loans. Stock markets have crashed and companies around the world are laying off hundreds of thousands of workers.

Bush outlined some issues he wants considered at the summit, such as improving bank risk management practices, improving accounting rules for securities and harmonizing accounting laws.

Japan, the United States and other leading nations have also agreed that the IMF and World Bank need to be overhauled so that emerging economies such as China have a greater voice.

Japan will offer to lend up to 100 billion dollars to the IMF to provide financial lifelines to emerging countries, Prime Minister Taro Aso announced.

German Chancellor Angela Merkel, in an interview a German newspaper published Thursday, acknowledged the talks would be difficult but said it was crucial that the first steps towards improved financial regulation are taken soon.

“We have to implement the first steps in the coming months. The target is that in the future all areas, all products and all businesses are properly regulated and supervised,” Merkel said.

But the US leader’s term finishes on January 20 and he cannot make firm commitments for president-elect Barack Obama. Other participants have also sought to douse expectations.

“We cannot expect a miracle from this summit,” said European Commission president Jose Manuel Barroso in an interview with a German daily.

He said the summit would be “the beginning of a process that will create a finished programme in 100 days.”

With even Hong Kong trading tiger Hong Kong falling into recession and European automakers announcing a 14.5 percent sales slump for October, the size of the crisis facing world leaders appears to grow by the day.

The Group of 20 countries account for 85 percent of the world economy and about two-thirds of its population.

Its members are the United States, Germany, Japan, France, Italy, Britain and Canada, the European Union, Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.

Spain and the Netherlands have also been invited to the Washington summit.