G20 countries promise 1 trillion dollars and financial rules

World leaders clinched a 1.1 trillion dollar deal on Thursday to combat the worst economic crisis since the Great Depression and said financial rules would be tightened to stop it happening again.

US president Barack Obama declared the G20 summit in London a "turning point" for the world economy, even though he had won no promises for more government spending to combat a deepening world recession.

Unlike previous Western-dominated summits, this gathering included China, India and other economic giants as well as rising powers. Brown: "I think the new world order is emerging, and with it the foundations of a new and progressive era of international cooperation."

Obama, in his first major venture into international diplomacy, failed to get US trading partners to spend more money on job-creating stimulus programs, as the US and Britain have done. The proposal was opposed strongly by France and Germany.

French president Nicolas Sarkozy celebrated the waning of the Anglo-Saxon model of lightly regulated capitalism, which many blame for excess that have triggered the crisis.

World stocks rallied on bold action that will help finance emerging markets. By day's end the index of top European shares was up 4.9 percent. On Wall Street, the Standard and Poor's index was up 3.73 percent. But economists cautioned against euphoria.

"We have agreed on a series of unprecedented steps to restore growth and prevent a crisis like this from happening again," Obama told a news conference. "We've also rejected the protectionism that could deepen this crisis."

The summit partners renewed vows not to turn inward or pass protectionist policies, even though since the November meeting 17 of the 20 core members, including the United States, have acted to protect domestic industries. In the US those actions have included bailouts for Detroit automakers and a "buy American" provision in the 787 billion dollar stimulus package.

G20 leaders from the largest developed and emerging economies ticked off a raft of actions on politically sensitive topics - new rules on bonuses, publishing a blacklist of tax havens that could lead to sanctions, imposing oversight on large hedge funds and on credit rating agencies.

Emerging markets

Markets, desperate for good news when the global economy is shrinking for the first time since World War II, reacted positively to imposing headline of 1.1 trillion dollars that boosts financing through the International Monetary Fund (IMF) and for trade. Much will be directed to emerging markets increasingly sucked into the global economic turmoil. Its size was unexpected.

In addition British prime minister Gordon Brown, the summit host, said governments already have pledged 5 trillion dollars of public stimulus by the end of next year, even before taking into account their commitments to do whatever may be needed that came from the London summit.

But missing from the deal were specifics on the financial rules, how banks would unload their toxic assets, let alone any clarity on the actual size of stimulus already in the pipeline. Brown did not say how the 5 trillion dollars squared with an estimate he gave just a day earlier of about half that amount. Indeed,Obama spoke of around 2 trillion rather than 5.

The new funds available through IMF and other institutions included 250 billion dollars of IMF reserve units called Special Drawing Rights. In addition, the IMF would see its own resources tripled, with up to 500 billion dollars of new funds, of which 40 billion would come from China - a significant step for the world's third largest economy. Much of that is likely to go to struggling poorer countries, notably in eastern Europe.

The summit also agreed a trade finance package worth 250 billion dollars over two years to support global trade flows, which are forecast to fall 9 percent this year under the impact of the credit crunch - a boost to the world's major exporters.

Some economists said the new IMF funds masked the lack of agreement on further fiscal stimulus at national levels, something the United States, UK and Japan wanted but France and Germany strongly resisted.

Tax havens

Brown conceded that there were "no quick fixes" but said the decisions would shorten the recession and save jobs. The G20 said in a communique the measures taken would raise world output by four percent by the end of next year.

French president Nicolas Sarkozy said the results were beyond what could have been imagined. Germany's finance minister welcomed the fact that no obligation was agreed for countries to adopt further stimulus packages. The issue had created tension in the summit build-up, with Washington favouring such packages and Paris and Berlin preferring to let earlier measures take their course.

Addressing a key demand from France and Germany, Brown said the leaders agreed "there will be an end to tax havens that do not transfer information on request. The banking secrecy of the past must come to an end." Costa Rica, Malaysia, the Philippines and Uruguay have been placed on the blacklist of non-cooperative tax havens, according to a copy of the document obtained by Reuters.

The tax haven issue had threatened to be a stumbling block to agreement, with France and Germany demanding a crackdown on jurisdictions whose bank secrecy laws they portrayed as enabling the rich to dodge taxes at a time of economic hardship.

"Since Bretton Woods, the world has been living on a financial model, the Anglo-Saxon model - it's not my place to criticise it, it has its advantages - clearly, today, a page has been turned,"Sarkozy said, referring to the landmark conference that created the post-war economic order.