A group of European leaders met yesterday and pledged cooperation to ensure economic stability, and called on various market players, regulators and international institutions to take steps to shore up financial system stability.

The joint communique from UK prime minister Gordon Brown, French president Nicolas Sarkozy, German chancellor Angela Merkel, Italy’s prime minister Romano Prodi, and European Union president José Manuel Barroso, stressed that the leaders of the major European economies, “remain committed to cooperating closely to maintain economic stability, and to strengthening and deepening economic reform. At this time of global uncertainty we need to signal our commitment to an open global economy.”

As for financial markets, they noted the need to rebuild confidence and increase the transparency of financial markets, institutions, and the instruments they trade. To this end, they called for improvements in the information content of credit ratings, noting that they will consider regulatory action if market-led solutions don’t materialize.

They also demanded: the major audit firms and supervisors to deliver clear and consistent guidance on valuation and disclosure of the risks of financial institutions’ off-balance sheet vehicles; prompt and full disclosure of losses banks and other financial institutions; improvements in EU early warning on financial stability; and, that market participants, the Financial Stability Forum and the EU act rapidly to ensure adequate transparency and disclosure about how structured products are valued, that uncertainties around those valuations are clear and that risks are well managed.

Recent events have also shown the need to improve management of liquidity risk, they said. “The Basel Committee of Banking Supervisors should bring forward standards on improving the international management of liquidity risk. Additionally, we need to improve dialogue between supervisors and firms about risk management and stress testing,” they said.

They also said it’s important to ensure the work already underway in the FSF and the EU to improve crisis prevention and management is concluded and implemented as soon as possible. And, they added, “We need a better early warning system for the global economy and we need to ensure that its warnings have the force and authority to ensure that they are acted upon.” They suggested that the IMF and FSF should also present proposals on how they will further enhance their cooperation.

The Securities Industry and Financial Markets Association said it supports the EU leaders’ demands. It said that the structured products industry is actively working on developing further transparency and believes it to be essential for governments to take account of these initiatives if they are to provide an adequate response to the crisis.

Karsten Moller, managing director, head of Europe and Asia at SIFMA, added, “We recognise and applaud the leaders’ attempt to be even-handed in resolving the crisis and bringing stability to the market, without recourse to rushed legislative action. There must also be recognition of the global nature of the markets and the ensuing crisis cannot be addressed in a piecemeal approach. SIFMA is dedicated to working with a number of national and international associations and regulatory agencies on the transparency initiative and to put into place workable and practical solutions.”