By Shang Jun

Bowing to Europe's enthusiasm for a new global financial order, US President George W. Bush has agreed recently to host a world summit on reforms of the international financial system.

After a weekend meeting at Camp David some 100 km north of Washington D.C., Bush said in a joint statement with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso that the summit would "seek agreement on principles of reform needed to avoid a repetition of the problems and assure global prosperity in the future."

It was regarded as a victory for European Union (EU) leaders, who are pushing hard for an overhaul of the current global financial system in the wake of the financial crisis.

Europe has become a big victim in the financial crisis, which originated in the United States. As European banks are still struggling with tight credit triggered by the US sub-prime mortgage defaults, Europe learned it can hardly be separated from the United States.

Due to the close transAtlantic financial ties, any problems in the US financial market may soon spread to Europe. In some cases like the current financial crisis, Europe was even under a risk of paying more than the United States since it is difficult for the EU, composed of 27 individual countries, to react as quickly as Washington.

That is why when the Bush administration put forward a 700- billion-dollar rescue package shortly after the outbreak of the latest financial storm, each EU member state was fighting on its own. Their fragmented response had been a source of concern for the stumbling markets.

Fortunately, EU countries finally got untied at their autumn summit last week, adopting the same toolbox of measures to deal with the crisis, which was largely modeled after the British rescue package designed by British Prime Minister Gordon Brown.

EU leaders apparently blamed the financial crisis on the failure of free-market capitalism in the United States.

"The financial crisis is not the crisis of capitalism. It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism," Sarkozy said in a recent speech.

"We must reform capitalism so that the most efficient system ever created does not destroy its own foundations," he said on Saturday in a speech when he visited Canada.

The French president suggested the place for the global finance summit should be New York because the financial crisis had its root causes there.

"Insofar as the crisis began in New York, then the global solution must be found to this crisis in New York," Sarkozy said.

Analysts said the EU's enthusiasm for a new global financial order is in essence a challenge to the unfettered "Anglo-American" model of capitalism and the US financial superpower.

Traditionally, Europe has more state-regulated systems. By contrast, the United States has free-market capitalism, in which private enterprises enjoy relatively unfettered autonomy and state intervention is at a minimum and unwelcome.

The US system is a sharp contrast to the socialized French system, where there is extensive state intervention and one of the most generous social security entitlements in Europe.

But the financial crisis was regarded as a result of loose US control of "Wall Street greed." In the new global financial order, the EU wants to strengthen transnational supervision of those financial giants.

British Prime Minister Brown had called for a reshaping of the International Monetary Fund, a Washington-based institution born of the 1944 Bretton Woods agreement, as the keystone of global market regulation and an early warning system for the global economy.

He called on national authorities to set up 30 supervisory colleges that would cooperate in regulating major cross-border financial institutions.

In addition, the EU eyes tougher regulations on hedge funds, new rules for credit-rating companies and limits on executive pay.

Sarkozy also raised the issue of world monetary system in the future, a move seen by some analysts as a challenge to the long-time dominance enjoyed by the US dollar.

All these proposals are not easy for the United States to swallow.

While agreeing to talk, Bush said the agenda for the first summit would include ideas on how to prevent future crises in a way that preserved the free-market system.

"As we make the regulatory and institutional changes necessary to avoid a repeat of this crisis, it is essential that we preserve the foundations of democratic capitalism – a commitment to free markets, free enterprise and free trade," Bush said.

"We must resist the dangerous temptation of economic isolationism and continue the policies of open markets that have lifted standards of living and helped millions of people escape poverty around the world," he added.

(Xinhua News Agency October 23, 2008)