VZCZCXRO9024
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLO #0341/01 0351159
ZNR UUUUU ZZH
R 041159Z FEB 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 7250
RUEHKO/AMEMBASSY TOKYO 1109
RUEHOT/AMEMBASSY OTTAWA 1114
RUEHMO/AMEMBASSY MOSCOW 2544
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 LONDON 000341 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY ALSO FOR A/S CLAY LOWERY 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EU UK
SUBJECT: PM BROWN HOSTS SUMMIT: PROPOSALS FOR STABILITY IN 
GLOBAL FINANCIAL MARKETS 
 
REF: LONDON 00116 
 
LONDON 00000341  001.2 OF 003 
 
 
SUMMARY: 
 
¶1.  (SBU) Summary. On January 29, UK Prime Minister Brown, 
together with German President Merkel, French President 
Sarkozy, Italian PM Prodi, and EU President Barroso, issued 
a joint communiqu proposing steps to enhance transparency 
and promote stability in the global financial markets. The 
leaders said that the European economy remains 
fundamentally strong and reaffirmed their commitment to an 
open global economy.  They stressed the need for private 
sector solutions backed by regulation to enhance 
transparency in the financial sector; to finish and 
implement the crisis management work of the EU and 
Financial Stability Forum (FSF); and to seek a new role for 
the International Monetary Fund to oversee global macro 
financial stability (see para 7 for key excerpts). 
According to a contact in the Cabinet Officer, there was 
complete agreement on the communiqu; the leaders asked 
Brown to lead on these issues at the July G8 Summit and 
Brown agreed to support EU membership in the FSF. End 
Summary. 
 
¶2.  (U) At the October 2007 Lisbon EU Summit, Brown, Merkel 
and Sarkozy signed an ad hoc trilateral statement regarding 
financial market developments and agreed to meet to discuss 
how they might steer the work of the EU regarding long term 
decisions to ensure economic stability.  The meeting took 
place on January 29; participation was expanded to include 
Italy and the EU, see reftel. Brown read the communiqu at 
a press conference following the meeting at which each 
leader took a question from the press. 
 
 
¶3.  (SBU) Simon Girdlestone, ECOFIN Desk Officer, European 
Secretariat at the Cabinet Office told Econoff on January 
 
SIPDIS 
30 that there was complete agreement on the communiqu, 
which was not changed from the initial draft.  Girdlestone 
said that there were no divergent views expressed regarding 
either the need for added regulation or the need to resist 
protectionism. He also confirmed that Brown agreed to 
support EU membership in the FSF. 
 
¶4. (SBU) It was surprising that the five leaders were in 
such complete agreement on the issues discussed that there 
were no changes to the draft communiqu, Girdlestone added. 
At the press conference, each leader answered a single 
question from a member of their press corps.  In his 
remarks, Barroso also referred to the EUQs future 
participation in the FSF.  HM Treasury contacts had 
previously noted to Econoff that the UK felt it would be 
helpful to have the EU as a member of the FSF, but that the 
UK would not propose EU membership.  Consistent with this 
view, Girdlestone confirmed that Brown said at the summit 
the UK would support EU membership. 
 
¶5. (SBU) Girdlestone said that PM Brown had been tasked 
with raising the issues in the communiqu at the July G8 
Summit in Japan. 
 
¶6. (SBU) The communiqu reference to an agreement on the 
Doha round being essential to an open global economy 
reflected the view of all five leaders, according to 
Girdlestone. 
 
The Communiqu 
 
¶7. (SBU) Relevant excerpts below.  See full text of 
communiqu at 
http://www.number10.gov.uk/output/Page14443.a sp 
 
Begin excerpts of joint communiqu: 
 
WORLD ECONOMY 
 
The fundamentals of the European economies remain strong 
with employment still rising. They are thus well placed to 
face the challenges presented by heightened global 
uncertainty. As the leaders of the major European economies 
we remain committed to cooperating closely to maintain 
economic stability, and to strengthening and deepening 
economic reform. At this time of global uncertainty we need 
to signal our commitment to an open global economy. An 
ambitious and balanced agreement on the Doha round, to 
 
LONDON 00000341  002.2 OF 003 
 
 
which we are committed, is essential to this. 
 
FINANCIAL MARKETS 
 
We look forward to discussing the outcome of the work 
currently underway in the Financial Stability Forum, and to 
discussing at the Spring European Council Ecofin's work to 
examine the causes and proper response to recent financial 
market turbulence. 
 
In developing a longer term response we should be guided by 
three principles: 
 
-First, primary responsibility for managing risk is and 
must remain with individual financial institutions and 
investors. 
 
-Second, this needs to be backed up by strengthened 
national regulatory and supervisory frameworks. 
 
-Third, regulatory authorities in different countries need 
to cooperate and exchange information effectively in the EU 
and internationally to prevent and manage crises and 
contagion. 
 
More immediately, however, we must rebuild confidence and 
increase the transparency of financial markets, 
institutions, and the instruments they trade by: improving 
the quality of the information available to investors on 
structured products, including in relation to their 
valuation; enhancing the understanding and management of 
risk; and avoiding possible conflicts of interest. 
 
To this end we call for: 
 
-improvements in the information content of credit ratings 
to increase investors' understanding of the risks 
associated with structured products, and for action to 
address potential conflicts of interest for rating 
agencies. While preferring market-led solutions, such as 
the amendment of the IOSCO code of conduct, if market 
participants prove unable or unwilling to rapidly address 
these issues we stand ready to consider regulatory 
alternatives; 
 
-improvements in the understanding of banks' and other 
financial institutions' exposure to off balance sheet 
vehicles. We call upon the major audit firms and 
supervisors to deliver clear and consistent guidance on 
valuation and disclosure of such risks; and 
 
-prompt and full disclosure of losses banks and other 
financial institutions that would help reduce uncertainty 
and improve confidence in financial markets; 
 
-improvements in EU early warning on financial stability 
through regular reporting from the Level 3 committees 
(CEBS, CEIOPS and CESR); 
 
-market participants, the FSF and the EU to act rapidly to 
ensure adequate transparency and disclosure about how 
structured products are valued, that uncertainties around 
those valuations are clear and that risks are well managed 
 
The Basel Committee of Banking Supervisors should bring 
forward standards on improving the international management 
of liquidity risk. Additionally, we need to improve 
dialogue between supervisors and firms about risk 
management and stress testing. 
 
Market orientated solutions are crucial to achieving the 
necessary improvements in business operations and in 
interactions between market participants. We therefore 
welcome the voluntary best practice standards presented by 
the London-formed Hedge Fund Working Group on 23 January 
2008 in the context of the Financial Stability Forum's five 
recommendations on hedge funds. 
 
INTERNATIONAL AND EU COOPERATION 
 
It is also important to ensure the work already underway in 
the Financial Stability Forum and the EU to improve crisis 
prevention and management is concluded and implemented as 
soon as possible. This should include: 
 
 
LONDON 00000341  003 OF 003 
 
 
-measures to foster the effectiveness of EU networks of 
financial supervisors and to ensure strong and effective 
supervision of cross border groups; 
 
-common principles for international financial crisis 
management; 
 
-a common analytical framework for the assessment of the 
systemic implications of a potential crisis; 
 
-common practical guidelines for crisis management, 
including improved information exchange; and 
 
-closer cooperation between countries with particularly 
important links at firm or capital market level. 
 
REFORM OF THE INTERNATIONAL INSTITUTIONS 
 
We need a better early warning system for the global 
economy and we need to ensure that its warnings have the 
force and authority to ensure that they are acted upon. To 
this end: 
 
-in the short term the IMF and Financial Stability Forum 
need to report at the next IMF meetings on the threats to 
the global economy from financial sector developments. This 
will improve transparency about risks in the financial 
sector and how markets and regulators are responding. The 
IMF and FSF should also present as soon as possible 
proposals on how they will further enhance their 
cooperation. 
 
-in the longer term we should consider how to strengthen 
and clarify the IMF's responsibility to oversee macro 
financial stability. 
 
END Excerpts 
 
TUTTLE