The leaders of Europe’s key economies agreed this morning to stronger regulation for the financial markets and to double the investment in the International Monetary Fund ahead of the G20 summit. 

They did this against a backdrop of internecine squabbling over domestic protectionism and the unbalanced burden of maintaining a common currency.

AFP‘s Richard Carter:

The heads of Europe’s largest economies agreed here Sunday on the need for greater regulation of financial markets and of products such as hedge funds, a German government source said. The leaders of Britain, France, Germany, Italy, Spain and the Netherlands were meeting in Berlin to hammer out a joint European position for the Group of 20 meeting in London on April 2.

The German source said they had agreed that “no financial market, no financial product, no financial market actor should be without regulation or oversight.” And in what appeared to be a major shift in the position of countries such as Britain, the source said all the leaders agreed a tough stance on hedge funds, the highly speculative and lightly regulated products that have been blamed for fuelling instability in financial markets. “The demand for direct regulation of hedge funds is no longer questioned by any of the participants,” the source said on the sidelines of the meeting in Berlin.

Germany was an especially strong proponent of this stance, AP‘s Patrick McGroarty notes.

“A clear message and concrete action are necessary to engender new confidence in the markets and to put the world back on a path toward more growth and employment,” Merkel said. European leaders backed Merkel’s call for a “charter of sustainable economic activity” to guide a reduction of economic imbalances and to stabilize financial markets.

But “Europe” is not a monolith, agreement on common language or not. For example, a separate AFP report out of Geneva this morning shows some resistance from Luxembourg:

Banking secrecy needs to be redefined, but abolishing it abruptly is not in Europe’s interest, Luxembourg’s deputy prime minister said Sunday, amid renewed debate over the concept sparked by a US tax probe of Swiss banking giant UBS.

“Old school Luxembourgers say that without banking secrecy, our country would not have gained such importance as a financial centre,” Jean Asselborn, who is also minister for foreign affairs and immigration, told the Swiss newspaper Sonntag. “But in the 21st century, banking secrecy cannot be the only instrument with which Luxembourg drives its economy. Therefore, we need perhaps to redefine banking secrecy and little by little to expand on the advantage of competence,” he said.

More seriously, as Gernot Heller and Kerstin Gehmlich report for Reuters, the accord comes as the Eurozone itself is coming under fire.

New tensions within the single currency bloc and the financial woes of European Union members to the east have cast a cloud over the meeting in the German capital.

Ahead of the gathering, the IMF threw its weight behind the idea of a common European bond to alleviate pressure on euro states such as Ireland and Greece that are being forced to pay hefty premiums over stronger bloc members to finance their debt. In eastern Europe, the currencies of countries such as Poland, the Czech Republic and Hungary have come under severe pressure, hitting millions across the region who borrowed in foreign currencies such as the euro. Germany, Europe’s benchmark issuer of debt, has rejected the idea of a euro-zone bond.

The continued efforts of the major European powers to work together and present a common front in the face of this crisis are encouraging.The whole way, though, they’re facing the political reality that they’re in fact soveriegn states whose interests frequently diverge.

James Joyner is managing editor of the Atlantic Council.