Ekstraordinært møde i Det Europæiske Råd den 17. september 2009 - Bilag 1: Brev til formanden for DER fra Merkel, Sarkozy og Brown vedr. forberedelse af G20-mødet

Dear Prime MinisterThe G20 Heads of State and Government are meeting inPittsburgh on 24 and 25 September. A strong joint message from theEuropean G20 members will be a crucial prerequisite for a successfulsummit. It is of key importance that the Heads of State and Governmentseize the opportunity offered by this summit to continue implementingthe policy measures decided upon, to reaffirm their determination todevelop a new basis for sustainable growth and to improve thefunctioning of the financial markets, in order to avoid a repetition of thepresent crisis. In preparing the Pittsburgh Summit we want to draw ourEuropean partners’ attention to the following considerations.While cyclical indicators point to economic stabilization, the crisisis not over and the labour markets will suffer the consequences of lowcapacity utilization over the months to come. Together we must send amessage from Pittsburgh that we are fully and firmly resolved toimplement our stimulus plans. While at present there is no alternative tothe policy measures adopted to fight the crisis, we must be careful toavoid laying the foundations of new global imbalances in the longer run.Therefore we should work on exit strategies to be implemented in acoordinated manner as soon as the crisis has ended.A key issue of the Pittsburgh Summit will be to further design aninternational regulatory framework for the financial sector that puts it atthe service of the real economy. The abatement of financial tensionshas led some financial institutions to imagine they can return to thesame modes of action prevalent before the crisis. This is not an option.Compensation in the financial sector is an important issue to beaddressed in Pittsburgh as a concrete deliverable of our commitment tobuild a more stable financial system. Our citizens are deeply shocked at

the revival of reprehensible practices, despite taxpayers’ money havingbeen mobilized to support the financial sector at the height of the crisis.We made commitments in London, and the FSB has formulated a set ofprinciples. Building on this we believe the G20 could agree in Pittsburghon the following additional conclusions:- We should improve governance: Compensation committees involvingthe board and the staff including risk controllers should be set up witha view to designing and further developing compensation policies.- We should enhance transparency: There should be appropriatedisclosure requirements imposed on banks.- Compensation policies should encourage risk awareness for all staffinvolved in determining a financial institution’s risk position: (i) Thevariable remuneration including bonuses, should be kept at anappropriate level in relation to the fixed remuneration and mustdepend on the performance of the bank, the business unit and theindividuals. (ii) When stock options or stocks are received as part ofthe compensation, they should not be exercised or sold for anappropriate period of time. (iii) The variable remuneration must takedue account of negative developments. This means that guaranteedbonuses are to be avoided. The payment of a major part ofsignificant variable compensations must be deferred over time for anappropriate period and could be cancelled in case of a negativedevelopment of the bank’s performance. (iv) Directors and officersshould not be completely sheltered from the risk incurred (forexample through compulsory deductibles). For members of themanaging board of stock listed companies the supervisory boardshould have the means even to reduce the compensation in case ofdeterioration of the performance of the bank.The G20 should transform the above principles into binding rulesfor financial institutions with sizable complex and risky business activitiesand ensure that there are sanctions at national level for banks that donot play by these rules. For example governments could not givemandates to those financial institutions which are recognized not toapply internationally agreed binding rules.

We should explore ways to limit total variable remuneration in abank either to a certain proportion of total compensation or the bank’srevenues and/or profits.Moreover, speculative activities that constitute a risk to financialstability should also be discouraged by increasing capital requirementson these activities as already recommended by the Basel Committee.Basel II rules should be fully implemented to ensure a level-playing-fieldin all countries represented in the Basel Committee.The G20 should address the moral hazard problem posed bysystemically relevant financial institutions. The Finance Ministers shouldexamine ways to enhance supervision requirements for systemicallyrelevant financial institutions to reflect the level of systemic risk thatthese banks pose to the financial sector, and how such banks could bewound up if necessary without shaking the financial system.Concerning non-cooperative jurisdictions, building on the genuineprogress observed, we should agree on a comprehensive list ofcountermeasures that could be implemented starting in March 2010 forjurisdictions that failed to implement effectively the internationalstandards regar ding the exchange of tax information.In Pittsburgh we must also lay the groundwork for a new mode ofglobal economic cooperation that can only function with the support ofstrong, legitimate international organizations. We must therefore decideon the road map for the necessary reform of governance andrepresentation at the IMF, which must be completed in January 2011,and of the World Bank, to be completed in spring 2010.We must review the delivery of the London commitments regardingfunding. In particular, all of the new bilateral contributions will need to beincorporated into the IMF’s New Arrangements to Borrow. We willpursue the review process of the capital adequacy of MultilateralDevelopment Banks. To support the most vulnerable people indeveloping countries all G20 countries should adopt the “Everything butArms” Initiative as a sign of resolute action in favour of development.Furthermore, we must make progress in our work on a Charter forSustainable Economic Activity aimed at anchoring sustainability as a

-2-

-3-

-4-