EU calls for overhaul of the worlds financial system. EU leaders at a special summit yesterday called for a global summit as soon as next months to rewrite the 1944 Bretton Woods accord. French President Sarkozy, who currently holds the rotating EU presidency, said Europe insists on the "re-foundation of the international financial system". Sarkozy and EU Commission president Barroso will fly to the U.S. on October 18 to meet president Bush and discuss the issue. Proposals for stiffer regulation mentioned yesterday included increased supervision for cross border banks, a global "early warning" system in case of crises, new regulations for hedge funds and credit rating companies as well as punishments for excessive risk taking among others. ECB's Quaden said the global economy is facing "the biggest financial crisis since the 1930s." Quaden stressed that the biggest challenge is "to provide liquidity to banks" and called on governments to increase banks' solvency. The council member said financial institutions face "liquidity shocks" and that the ECb wants to stem "contagion effects" from the financial turmoil and is accepting a "broad range of collateral". The comments come after the ECB announced yesterday that it will widen the range of elligible assets for its refinancing operations.
Meanwhile, EUR-USD experiencing sharp price swings either side of 1.3400 in volatile European trade. Global equity market weakness and talk of hedge fund redemptions played in to the dollar hand in to the European session and saw EUR-USD plunge from 1.3450 down to 1.3347 lows. However, good demand for EUR-JPY lifted EUR-USD and the pair is now eyeing offers ahead of the 1.3500 handle after it recorded rally highs of 1.3472. Meanwhile, ECB's Quaden is the latest ECB member stating the challenges to monetary policy from the current crisis. Quaden said eurozone inflationary pressure have eased and economic prospects have diminished, adding that the ECB will act firmly when necessary. The market is expected to remain jittery after broad based equity market weakness and a flight in to the low yielders, however, rumours of another coordinated rate cut has stemmed early flows, with equities stabilising and EUR-JPY extending its recovery to trade back above 135.00. The market will remain on tenterhook until 11:00GMT when last week's coordinated rate move took place.