FACTBOX-EU position on key topics for G20 finmins in Washington

BRUSSELS, April 11 (Reuters) – European Union finance
ministers and central bankers agreed last week on common
positions on key topics for the April 14-15 meetings of finance
leaders of the world’s 20 biggest economies in Washington.

EU delegations, which make up five of the 20 members of the
G20, are to stick to the following positions, spelled out in a
“terms of reference” document, obtained by Reuters.

ON DETECTING IMBALANCES THAT COULD LEAD TO CRISES

The G20 are to agree in Washington on “indicative
guidelines” for how to use a set of economic indicators agreed
in February to detect imbalances that could trigger a crisis.

The agreed indicators are: public debt and fiscal deficits,
private savings rate and private debt, external imbalance
composed of the trade balance and net investment income flows
and transfers, taking due consideration of exchange rate,
fiscal, monetary and other policies.

EU officials agreed that:

– “We favour a combination of both structural and
statistical approaches. The euro area dimension needs to be
fully taken into account when assessing external imbalances.”

– “The Paris communique noted that the agreed indicators
would take due consideration of exchange rate, fiscal, monetary
and other polices. This could be done in a descriptive way in
the first stage. Exchange rate factors will be key in the
second, in-depth analysis stage.”

– “Only G20 members facing the largest imbalances should
move into the in-depth stage of the exercise. Given spillovers,
there are merits in subjecting large countries to a more
stringent screening criterion by applying a measure for systemic
importance in the indicative guidelines.”

ON MANAGEMENT OF CAPITAL FLOWS

– “The EU supports the development of guidelines/a
framework, covering both source and recipient countries, to
provide countries with guidance by the International Monetary
Fund on policies to deal with capital flows. Such guidelines
should have a comprehensive scope and emphasise the importance
of macroeconomic and prudential policies and structural measures
as primary capital flow management tools.”

– “The group will have to be careful not to signal to
markets that the G20 endorses a general use of capital
controls.”

ON GLOBAL LIQUIDITY MANAGEMENT

Part of the global monetary overhaul could entail the
inclusion of the currency of the world’s now second biggest
economy, China, in the basket that makes up the Special Drawing
Right (SDR) — an international reserve asset of the IMF.

Some economists say a bigger base for the SDR could help cut
an overreliance on the dollar as the world’s reserve currency.

The basket is now made up of four currencies — the dollar,
euro, pound sterling and Japanese yen. Created in 1969, it does
not reflect the rising economic importance of China.

The EU position is the following:

– “On the Special Drawing Right (SDR), the EU is ready to
discuss the broadening of the SDR basket to better reflect
economic realities. We take note of the strong interest
expressed by China of having the renminbi in the SDR basket. A
decision should follow clear and transparent criteria and entail
adequate preconditions for the admission of the currencies
concerned to ensure the stability of the basket.”

– “The EU is open to discussing the role of the SDR and how
it could possibly contribute to improving the system, although
many technical, political and legal difficulties will need to be
addressed.”

ON FINANCIAL REGULATORY REFORM

– “The key issues for the April meeting from an EU
standpoint are:

1. ensuring the timely and consistent implementations of
Basel II and Basel III measures by all G20 countries as well as
other jurisdictions globally, with a particular focus on U.S.
implementation

2. ensuring the development and international implementation
of a consistent framework for all Systemically Important
Financial Institutions (SIFIs)

3. a full and consistent implementation of the remuneration
standards which were endorsed by all members of the G20,
accompanied by a rigorous ‘peer review’ process within the FSB,
allowing for peer pressure aimed at fostering further
implementation

4. further progress on identifying and listing
non-cooperative jurisdictions

5. agreeing on the scope of the work on the shadow banking
system including the identification of shadow banking activities
and entities and the mapping exercise of data and regulation on
this field.”

ON COMMODITIES

“The EU should stress:

– the need to improve the quality and availability of data
on physical and derivatives markets, including position
reporting.

– the need for an effective regime to identify and prevent
market abuses

– adequate and proportionate financial regulation,
especially for participants that trade in financial derivatives

– to assess the power and tools for the respective
supervisors to ensure more transparency of physical and
derivatives markets while preserving market liquidity.”

(Reporting by Jan Strupczewski; Editing by Ruth Pitchford)

FACTBOX-EU position on key topics for G20 finmins in Washington