Germany will push for stricter regulation of financial markets at the G20 summit, writes DEREK SCALLY

GERMAN CHANCELLOR Angela Merkel has said that a new, independent European ratings agency is essential to euro zone recovery and long-term stability.

The German leader said that access to accurate and honest information about companies and economies was essential if the euro zone was to react better to systemic risks in the future.

“I would back a European ratings agency in competition with the others,” said Dr Merkel to an international G20 conference in Berlin.

“The agency would “naturally not be politically dependent”, she said, but would “act in the spirit of sustainable economics that is not so oriented around the short term”.

She said the EU’s recent Greek aid package was a lost opportunity, after ratings agencies left markets unsure how to respond to the European Central Bank’s decision to buy up lesser-quality loans.

“That should have said ‘we believe in the Greek aid package’, but the effect on the markets was not so clear,” said Dr Merkel.

She hinted that, if agencies continued to provide “dishonest information”, Germany would push for “the right thing politically” – and introduce stricter regulation.

Earlier, German finance minister Wolfgang Schäuble backed the idea of tougher regulation to restore the financial market’s “serving function”.

“Markets no longer fulfil their task of spreading prosperity,” he said. Instead highly leveraged “innovative products” were used by traders who “don’t earn well from calm, stable markets, but from volatile markets”.

“If we want to learn a lesson from the crisis it is that more regulation leads to more responsible behaviour,” he said.

In her keynote address, the German leader said she was anxious that next month’s G20 summit in Toronto produces results on regulation of markets and risky products.

In addition, she said the G20 countries would need to agree a co-ordinated exit from economic stimulus measures agreed last year to prevent market distortion and the risk of protectionism.

After dismissing the idea of a financial transaction tax at the weekend, Dr Merkel said yesterday that she will be pushing for such a levy and expects agreement – “if not at the first dinner” in Toronto.

Conference participants in Berlin gave the German proposals a mixed reception. Canada, which hosts the G20 summit, made clear that, as their banks were not affected by the crisis, they opposed such a finance levy.

Bank of England policy official Adam Posen was cool on more regulation for hedge funds but backed an International Monetary Fund proposal for a financial activity tax on profits and bonuses in the financial sector. French finance minister Christine Lagarde, speaking by video link, said she hoped a bank levy would be in place by the end of the year.

“It’s clear that many countries are on this page and are determined to organise such a levy,” she said. “We need to progress this matter.”

Ms Lagarde also called for reforms of rating agencies to stop them “undermining markets”.

Her show of unity went some way to ending a Franco-German rift after Berlin introduced unilateral measures to ban speculative trading.

Dr Merkel has launched her new strategy on the financial crisis just as a poll suggested two-thirds of Germans don’t think she is showing leadership – in the crisis or in her government.

That figure could rise further this morning: the Bundestag is voting on Germany’s contribution to the euro zone stability fund. The opposition parties will abstain or vote against the loans bill, now valued at €148 billion.

More worrying for Dr Merkel yesterday was the rising discontent about the deal among her own party rank and file MPs, whose votes she needs to pass today’s deal.