By Glenn Somerville and Matt Spetalnick

WASHINGTON (Reuters) – World leaders grappling with the worst financial crisis since the Great Depression of the 1930s pledged on Friday to deliver a concrete plan to ward off recession and prevent future meltdowns.

But prospects for joint action on growth, let alone a major overhaul of the world financial system, looked slim with host President George W. Bush resisting bold moves before leaving office in two months and President-elect Barack Obama absent.

Europeans said a broad framework for reforms with a timeline for further action will be released when the summit wraps up on Saturday.

“We share a determination to fix the problems that led to this turmoil,” Bush said at a White House dinner for leaders of the Group of 20 advanced and developing economies.

Emerging market countries warned time is running out to stem the economic damage from credit market turmoil that began about 17 months ago.

“If we don’t take quick action we run the risk of falling into a depression,” said Brazilian Finance Minister Guido Mantega, adding both regulatory reform and concerted government spending were needed.

Montek Singh Ahluwalia, a top Indian economic policy-maker, piled on the pressure for developed countries to inject large amounts of government money into their economies. “If we are facing the most serious crisis in the world economy since the Great Depression then we need to take a lot of possibly unorthodox and special steps,” he said.

The euro zone, the world’s second largest economic block, tumbled into recession in the third quarter. The United States and the United Kingdom are fast headed there, which would risk pulling the world into its deepest slump in many decades.

Asian economies heavily dependent on exports to the West are particularly vulnerable. China, South Korea and Japan said at the summit they were considering steps including currency swaps, which would strengthen their regional defenses against the global financial upheaval.

ROLE OF CAPITALISM

European leaders have said the deepening financial crisis shows why stricter market rules are needed to rein in free-wheeling capitalism. German Chancellor Angela Merkel said as she left Berlin a clearer framework is needed to prevent future problems. Her finance minister, Peer Steinbrueck, said the window of opportunity for financial reform had never been so wide open.

British Prime Minister Gordon Brown is even more ambitious. He is calling for redesigning the 60-year-old world financial order, called Bretton Woods, to meet the demands of a global economy where capital moves at lightening speed across borders.

But the United States and Canada only want moderate reforms, and have ruled out a major financial overhaul.

Bush, trying to counter criticism that U.S-style capitalism is to blame for the crisis, said in a toast that “free market principles offer the surest path to lasting prosperity.” He has urged leaders to work to fix the system, not dismantle it.

Despite underlying tensions over the summit’s objectives, Bush was all smiles as he welcomed arriving leaders, including Britain’s Brown, French President Nicolas Sarkozy, Russian President Dmitry Medvedev, U.N. Secretary General Ban Ki-moon, Italian Prime Minister Silvio Berlusconi and Japanese Prime Minister Taro Aso.

“I don’t think the major economies of the world will … consent to have external control over their regulatory systems,” Canadian Prime Minister Stephen Harper told reporters before arriving in Washington.

Japan backed that view. “We think the fundamental principle should be that capital flows based on the free market should continue to serve as the foundation of the global system,” Japanese Foreign Ministry spokesman Kazuo Kodama said.

The crisis began when falling values of U.S. mortgage-related debt triggered credit turmoil that has felled world-class banks and virtually shut down lending.

The United States, however, is in a poor position to make commitments on reform with Bush’s credibility in tatters and his days in office quickly dwindling.

Obama, who moves into the White House on January 20, opted to stay away and instead send representatives, including former U.S. Secretary of State Madeleine Albright, to meet leaders on the sidelines. Obama has urged a further fiscal stimulus to lift the economy, but the current White House stands opposed.

U.S. Treasury Secretary Henry Paulson admitted the administration’s weak hand. He told CNBC television the United States had “in many ways humiliated ourselves as a nation with some of the problems that have taken place here.”

GREATER EMERGING MARKET ROLE

The summit unites leaders from 19 nations and the European Union under the umbrella of the Group of 20. It includes emerging markets like China, Brazil, India and South Africa and older industrial powers from the Group of Seven nations in what could be the power constellation of the future.

The summit was billed as a chance to shift more policy-making power to emerging-market nations. But that may await negotiations, since it would require some rich countries to yield power, which is unlikely to come easily.

However, there have been calls for countries like China and Saudi Arabia that are flush with foreign exchange reserves to play a larger role in throwing a safety net to other emerging nations by more fully funding institutions like the IMF.

(Writing by Glenn Somerville and Matt Spetalnick; editing by Tim Ahmann and Todd Eastham)

source: yahoo finance

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