US pitches free markets ahead of G20 summit

US makes pitch for modest reforms but European countries favour stiffer regulations to combat credit crisis.

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WASHINGTON // As world leaders headed to Washington for a weekend summit on the global financial crisis, the United States made a pitch for modest reforms instead of the stiffer regulation that some European countries favour. "The crisis was not a failure of the free market system," George W Bush told a New York audience yesterday ahead of tonight's dinner and tomorrow's meeting of the heads of the Group of 20 developed and emerging nations.

The greater threat to prosperity is "not too little government involvement, it is too much government involvement in the market," Mr Bush said. The message may ring hollow with some G20 countries that say under-regulated US financial industries effectively exported to the global economy a crisis that originated in reckless US mortgage lending. The Brazilian president Luiz Inacio Lula da Silva said last weekend in Sao Paulo, where G20 finance ministers met, that the world economic order "collapsed like a house of cards" because of a "dogmatic faith in non-intervention in markets."

Brazil, which holds this year's G20 chairmanship, is one of the key emerging-market nations joining leaders from the old-line Group of Seven rich nations for talks that implicitly acknowledge the rapidly growing emerging powers now deserve a bigger say in how global finance operates. Others include China, India, South Africa and South Korea. As leading G7 economies like the United States and Germany sink into recession, emerging markets are seen as potential sources of growth that may bring a recovery, though not soon.

"We are going to have to face up to a very difficult and long-lasting economic crisis," Germany's deputy economy minister, Walther Otremba, told Reuters. Germany's economy, Europe's largest, shrank by 0.5 per cent in the third quarter to put Germany in recession for the first time in five years. The G20 meeting, coming with only two months left for the Bush administration, has not generated high expectations.

But participants said the devastation wrought on household wealth, corporate balance sheets and government budgets by the financial crisis made it urgent to at least begin charting a course for avoiding similar disasters in future. *Reuters