PARIS — After a dramatic one-day rebound, global stock markets slumped sharply again on Wednesday — providing new impetus as world leaders called for a full-scale revamp of international financial markets at the heart of the intractable economic crisis.
"We are not at the end of the crisis," Luxembourg Prime Minister Jean-Claude Juncker said Wednesday at a meeting of European leaders in Brussels, according to Reuters. "We are still living in dangerous times."
Stock markets from Berlin to New York fell dramatically amid new reports of high unemployment in England, slack retail sales in the United States and a candid assessment by the president of the Federal Reserve Bank of San Francisco that the United States appears to be in a recession.
Stock markets in Germany, France and England were all down at least six percent on Wednesday and the U.S. market dropped 7.9 per cent, said to be the second largest point loss in the market's history.
Well aware that their actions so far may at best cushion a severe recession, European leaders Wednesday called for a full-scale revamping of international financial markets that will go beyond the bank nationalization plans embraced in capitals around the world.
Meeting European leaders in Brussels, British Prime Minister Gordon Brown said nothing short of "very strong and very radical changes" were now necessary.
"Stage two is to make sure that the problems that developed in the financial system — problems that we know started in America — that these problems do not recur again," said Brown, who is being hailed as an international hero for initially proposing the bank rescue plan that became the foundation for the international compromise.
To get things moving, Brown joined French President Nicolas Sarkozy and German Chancellor Angela Merkel in calling for an international conference to revamp global financial systems established more than 60 years ago in Bretton Woods, New Hampshire.
"The rebuilding of the financial international architecture requires exactly the same vision that was seen in the 1940s when we created the International Monetary Fund and the World Bank and the United Nations," Brown said. "Now we have to create the institutions that are relevant, not for national and sheltered economies, but are relevant for global economies."
The White House quickly embraced the idea and issued a joint statement with leaders of the Group of Eight major industrial nations that announced plans for a meeting "in the near future."
In short, Brown has said that new international oversight, tighter regulation and tougher accountability have to stand at the heart of any new system.
Central steps in the current discussion are infusing the International Monetary Fund with significant new oversight powers and calling on national authorities to require banks to retain higher reserves.
During the Brussels discussions, the 27 EU countries all agreed to embrace the European bailout plan. Sarkozy later told reporters they've agreed to an international meeting as soon as November, after the U.S. presidential election.
All the leaders agreed that they have to "revamp capitalism" and push for a "new Bretton Woods," he said.
Rym Ayadi, a senior research fellow at the Brussels-based Center for European Policy Studies, an independent think tank supported by the European Commission, said that world leaders don't need to start from scratch in reforming the system.
Instead, Ayadi said, empowering the IMF and enacting "a regulatory paradigm shift" in imposing new banking rules would be significant changes.
"There should be reforms, but there doesn't have to be a new Bretton Woods," Ayadi said.
But considerable doubt remains over the ability, and the need, for a sweeping overhaul of international finance.
While Europe and the United States eventually rallied around a coordinated approach, it was by no means easy.
Daniel Gros, director of the Center for European Policy Studies, called discussion of international reforms "empty talk" that will be impossible to carry out because of the differences in philosophy
"That might be desirable, but I don't see any way to do it," said Gros. "It's just impossible. Are they willing to give up sovereignty? No."
While Brown is leading the new charge for unity, England has not always been so eager to join its European neighbors in financial transformations.
Unlike other big countries of Europe — Germany, France and Italy — Britain has not joined the common currency zone that adopted the Euro, preferring instead to retain the Pound. And the opposition Conservative Party, which is still ahead in the national polls despite Brown's recent surge in popularity, has a vocal wing that wants nothing to do with Brussels-led governance.
(Special correspondent Julie Sell contributed from London)
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