Common Policy

French Finance Minister Christine Lagarde hosted the talks Thursday, Jan. 16, amid growing concern about the fallout from the US subprime mortgage crisis that has rattled markets since last year and cast a pall over the global economic outlook.

Lagarde, her British counterpart Alistair Darling, Germany's Peer Steinbrück and Tommaso Padoa-Schioppa of Italy discussed how to reach "a European strategy on all of the main issues of international finance," a French finance ministry official said.

Heads of the four governments are scheduled to meet again on Jan. 29 in London to expand on the finance ministers' work and prepare a European position ahead of a February G7 meeting in Tokyo. Other G7 members are the United States, Canada and Japan.

Crisis will continue

"We are dealing with a serious situation," Steinbrück said. "The crisis is going to continue for the next few months."

But after the Thursday meeting, Lagarde said the fundamentals of the European economy were "good" and that financial and money markets were in a process of "gradual recovery."

EU Monetary Affairs Commissioner Joaquin Almunia, who also took part in the talks, said the group had an optimistic outlook for the future.

"We do not predict a pronounced economic slowdown," he said

Officials said the biggest challenge facing the "European four" was finding a shared position on ways to increase market transparency, particularly in the banking sector, which has been hard hit by the US subprime mortgage crisis, and perhaps even strengthening the European Union's financial regulations.

Darling told reporters from a handful of European newspapers that the financial crisis was "significant" and required "rapid action." He also said the quartet of governments "share the objective of doing everything possible at government level, and separately by the central banks, to find a solution to the crisis on financial markets and prevent future crises."

Insufficient risk evaluation

The International Monetary Fund warned in a report this week that the crisis triggered by the collapse of the subprime mortgage market will likely produce deeper problems than expected because not all market players have come clean about their losses.

After denying it would be affected by the crisis, German mortgage lender Hypo Real Estate Holdings said Wednesday that it was taking a 400-million-euro ($586.2-million) hit from US credit investments. The crisis has also caused serious funding problems for Germany's IKB institute and SachsenLB bank. Deutsche Bank also announced this week that it would cut 300 jobs in its investment banking branch.

The IMF said the market's current turmoil was in part due to institution with insufficient analysis of the risk posed by new financial products.

EU finance ministers had agreed in December to step up coordination between their national financial surveillance bodies but Germany and Britain balked at a proposal from Italy for EU-wide regulations for financial institutions.