Davos Global Cooperation
Faces Protectionist Schisms

As world leaders in Davos called last week for international cooperation to tackle the financial and economic crisis, businessmen were complaining that the stress is only aggravating national divides.

The financial industry's effort to reduce risks from credit-default swaps is being held up because of regional competition. A mechanism set up by the London Clearing House has met resistance from banks and authorities in continental Europe.

British Prime Minister Gordon Brown and German Chancellor Angela Merkel were among leaders at the World Economic Forum in Davos, Switzerland, who said countries should work together on common economic policies and regulatory standards.

Many, including French Finance Minister Christine Lagarde, talked about the need to find common proposals ahead of the Group of 20 meetings scheduled to take place in April in London.

Merkel said the financial industry needs "clear-cut rules worldwide" and "a charter for the global economic order" that could lead to the creation of a United Nations economic council. She criticized "unfettered capitalism" and called for vigilance against protectionism, noting that she's "very wary" of government aid for U.S. automakers.

Brown warned that a "bigger problem" than trade protectionism is the threat of financial protectionism, in which banks repatriate capital from abroad, especially from emerging markets, to satisfy government terms for emergency assistance.

"What you’re seeing is a form of financial protectionism where banks retreat to their home base," Brown said in Davos. "The tendency at the moment will be to either retreat into protectionism or retreat into doing nothing."

Lagarde said that bank bailouts and fiscal stimulus plans are "implicit protectionism."

Gary Cohn, co-president of Goldman Sachs Group Inc., said he is concerned about an increase in protectionism in industries like banking and automobile manufacturing that have been supported by taxpayer money.

Rupert Murdoch, chairman of News Corp., said that he too was concerned about protectionism.

"A leading French industrialist told me how the government there, the President there, says 'I understand you have to make savings in France, but don't fire anyone in France,'" Murdoch said. "There's been a very dangerous move towards protectionism in many places."

Reaching common standards for bank capital requirements and similar regulatory issues will be possible even if there are signs of financial protectionism, said Adair Turner, chairman of the U.K.'s Financial Services Authority.

"There are going to be major breakthroughs on things like how do we deal with general provisions in banks," Turner said in an interview in Davos.

"It doesn't help us out of what we're in now, but makes it more robust so we don't do it again in 10 years' time."