EU leaders temper reform rhetoric at Washington summit

(WASHINGTON) - European leaders toned down demands for sweeping overhaul of global capitalism at a summit in Washington on Saturday, although they found support for more targeted and modest reforms of the financial system.

In the run-up to the summit, EU leaders had turned up the rhetoric with calls for the meeting to launch nothing less than a Bretton Woods II, recasting of the financial order for the 21st century.

From the start, French President Nicolas Sarkozy had been the driving force to hold the summit of G20 leading economic powers, which US President George W. Bush agreed to host after the French leader lobbied him during a visit last month.

With Bush due to turn over the White House to US president-elect Barack Obama in January, he was in no position to commit to radical reforms even if he wanted to -- which was not the case anyway.

Still, a senior US official expressed satisfaction that the summit did not "result in an assault on capitalism, or the death of capitalism, or the death of the free market system."

Sarkozy, whose country holds the European Union's rotating presidency, was careful in Washington to avoid repeating recent calls for a "new capitalism".

British Prime Minister Gordon Brown found limited support for his past calls for coordinated global "fiscal stimulus" as his government prepares tax cuts to boost Britain's embattled economy.

While the leaders left the door open to individual countries to use tax breaks to revive their increasingly struggling economies, leaders stopped short of committing to coordinated action on the fiscal front.

Still Brown held on to hopes that other countries would follow London, telling journalists after the summit: "I believe that you will see in the next few weeks significant further announcements by a number of countries."

Brown did win backing for his pet idea of an international "college" of supervisors to watch over the biggest financial groups, whose cross-border activities stretch beyond the reach of any one regulator.

Although G20 leaders agreed that the International Monetary Fund should be modernized, they stopped short of answering a call by EU governments earlier this month for the IMF play the "central role" in the global financial architecture.

Brown avoided speaking of a new role for IMF in the international financial system, while stressing: "It is absolutely clear that we are trying to build new institutions for the future.

"We are going to reform the IMF; as we do so, the World Bank may also be reformed," he added, underlining that the current institutions date back to the post-World War II period.

Declining to lay the foundation for a international super-regulator, the G20 leaders agreed in their final communique that financial sector control is "first and foremost the responsibility of national regulators."

Declaring the summit a "great success", German Chancellor Angela Merkel said "its main message is that nowhere in the world should there be markets, market participants or even products that do not have to submit to regulations and rules of transparency."

However, the final summit statement made little reference to clamping down on specific financial market actors or products such as largely unregulated hedge funds or the 60 trillion dollar credit derivatives market.

Even before the current financial crisis broke out, Merkel's government had long championed regulation of hedge funds, but failed to find little support internationally in the face of British and US resistance.