KEY European leaders who had been campaigning for a new regulatory body to monitor international finance but could not clinch a favourable decision at the G-20 summit of November 15 have now turned aggressive in their stance.

Previously, their demand revolved around re-inventing the IMF and World Bank to play the desired role and to pre-empt the kind of crisis that hit the United States in September. Now they have gone a step further and are asking for a new body similar to the UN’s security council and have warned the United States against blocking their attempts because, as they claim, capitalism cannot survive in its present shape.

”I’ve always in my political life been a supporter of a close alliance with the United States but let’s be clear: in the 21st century, a single nation can no longer say what we must do or what we must think,” said Nicholas Sarkozy, French president, at an international symposium in Paris on January 8.

“We’ll take our decisions on April 2 in London,” he said, referring to the forthcoming meeting of the G-20 which he helped found. “Perhaps the United States will join us in this change.”

Angela Merkel, the German chancellor, who has been more conservative in dealing with the crisis than the hard-charging Sarkozy, echoed the French president’s warning to Washington. “No country can act alone in this day and age, not even the United States, however powerful it may be,” she said while speaking at the symposium. The current crisis offers an opportunity to governments to construct a new architecture for managing global capitalism, and, she said, they should not feel contented by formulating a few rules.

The chancellor, who earlier favoured a stronger IMF giving it a supervisory role and making it a ‘guard’ of financial stability, said the world needs an ‘economic council’ in the United Nations to deal with economic matters just as the UN security council deals with security matters, and alongside the UN Charter, an economic sustainability charter should be drafted to establish rules for global financial governance.

The European leaders are convinced that the world would not return to laissez-faire approach once the crisis has passed. And that capitalism could collapse if it is not restructured. “Either we re-found capitalism or we destroy it,” argues Sarkozy. “Purely financial capitalism has perverted the logic of capitalism...it is amoral. It is a system where the logic of the market excuses everything.”

And, former UK prime minister Tony Blair, a co-sponsor of the symposium, agreed with the European leaders saying, a recasting of the system of international supervision is unavoidable because mid-20th century international institutions may not be able to address the 21st century problems. Europe is keen to change the rules of the financial game. Current leaders of Britain, France, Germany and Italy often speak vigorously for more regulation, lower corporate salaries, global governance and binding multilateral measures enforced by international organisations, and, on occasions, their boldness is a source of uneasiness to American protagonists of free market capitalist system. How far they can succeed in their mission is difficult to predict because there is still no consensus on how to regulate the world economy.

For many years, European models were viewed with disdain in the US financial circles because they lay stress on regulations and assign an effective role to the state. But it seems that the day is not far off when these models may be making a comeback following the failure of the US model of deregulated economy which the Americans had unilaterally imposed on the rest of the world. In fact, Europe took the lead and proved more nimble at handling the on-going crisis than the United States.

The November 15 summit which had the participation of leading emerging economies along with the developed world, was basically a European project aimed at holding a truly global dialogue to rein in the long-term effects of the current financial crisis and create a new regulatory body.

The next summit scheduled in April may be more eventful and decisive in many respects. The Washington moot was, in a way, a follow-up of G-8 held earlier, which is losing its meaningfulness in the changed situation. The G-20 summit was deemed so crucial by its sponsors that it was dubbed Bretton Woods-II to draw an analogue with the original 1944 meeting in which the World Bank and the International Monetary Fund were created.

But it seems the US establishment is not as enthusiastic as their European counterparts are about making a radical break with the past patterns and move quickly in new directions. Although the atmosphere in Washington has drastically changed in recent months in the wake of governmental rescue of the shaky banks, the fact remains that the United States has traditionally been a champion of free market economy, exercising few controls on its financial and banking system and demanding of other nations to do the same. Americans still find it hard to return to a pro-regulation paradigm and accept controls on their economy even after what happened in the Wall Street in September which has upset the global financial applecart.

Participants in the G-20 summit had included the US, Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Spain and Turkey. There was no consensus among them on how to stabilise the global financial system, or to ensure that the financial crisis would not occur again anytime soon. There was some agreement on how to evaluate global accounting norms but differences of opinion arose when it came to financing of the needs of international financial institutions. On upgrading or reforming the IMF and World Bank, there was some agreement but participants differed on how exactly to go about it.

The gathering, first of its kind, reflected the new balance of power in the world in the aftermath of the meltdown that British Prime Minister Error! Hyperlink reference not valid. has dubbed “the birth pangs of new global order.” Under the plans outlined by the leaders, countries such as China, Brazil and India would gain greater roles and responsibilities as part of a restructuring of the international financial system, while European leaders won a commitment to new regulations and controls on banks, rating agencies and exotic financial securities. There was an indirect rebuke to the United States when some leaders described the dramatic failure of market oversight in “some advanced countries” as among the root causes of the crisis.

The Europeans have for long been pushing for creating new international organisations or empowering the existing ones to monitor everything from the global derivatives trade to the way major banks are regulated across the borders. But the Bush administration has showed reluctance to go that far.

In the past it had resisted similar proposals as potentially compromising free markets. China may prove more cautious than any other nation. It is believed that Chinese officials, while joining Europeans in calling for an overhaul of current regulatory system, would stop short of supporting a proposal for a global organisation with significant power. The Chinese, it is stated, do not like the idea of having a global SEC since such an organisation can affect the sovereignty of countries.