The leaders of Germany and France took aim at the banking sector on Monday, pledging to check banks' power and push for limits on bonus payments at a Group of 20 summit next month.
Chancellor Angela Merkel said bonus payments to bankers were rightly driving a lot of people crazy and that she and French President Nicolas Sarkozy wanted the G20 summit in Pittsburgh on September 24-25 to make progress on financial regulation.
No bank may become so big that it could get into a position where it could blackmail governments, Merkel told a joint news conference with Sarkozy in Berlin.
Germany and France regard financial market excesses as being the root cause of the global economic downturn and want tighter regulations to prevent a repeat of the biggest financial crisis since World War Two.
We want to see things changed in Pittsburgh, Sarkozy said. These excesses cannot be allowed to be repeated as if nothing ever happened.
Merkel said Germany and France would propose that the European Union take a joint position to Pittsburgh, and called for the bloc to press for the full implementation of agreements that G20 leaders reached in April.
At their April meeting in London, the G20 leaders agreed to extend regulation and oversight to all systemically important financial institutions, instruments and markets including systemically important hedge funds.
Merkel believed a consensus could be found on dealing with bonus payments, drawing on new rules made by France and Germany.
She said G20 leaders would also discuss exit strategies from the fiscal and monetary policies they have used to blunt the impact of the economic and financial crisis.
We must take care that, on the one hand, we act correctly with regard to the recession and the economic crisis but on the other hand we mustn't make the same mistakes again that led to this crisis, she added.
After 9/11 the loose monetary policy in America was not withdrawn and this bubble was able to arise, she said.
Merkel said she and Sarkozy also discussed Iran's nuclear program. She said Tehran should realize how very serious a September deadline is for negotiations on its nuclear program.
U.S. President Barack Obama has given Iran until September to take up a six-power offer of talks on trade if it shelves nuclear enrichment, or face harsher penalties.
Iran should realize that we're taking it very seriously, Merkel said. We've decided that we'll discuss further sanctions in September if ... there is no clear statement from Iran.
Last week Merkel said Iran could face new sanctions in the energy and financial sectors if it does not show a willingness to negotiate on its nuclear program.
Sarkozy said there were many possibilities on the issue of sanctions, many more than some people seem to think.
We know very well what needs doing. But (we need) the unanimity and solidarity of the international community. This is the area where Madame Merkel and myself have been working hard.