G20: live blog | ANALYSIS: summit brinkmanship| Day of mayhem | Obama's day| GRAPHIC: what they really meant |

G20 leaders and ministers sat down to hammer out new rules for world financial markets today after a warning from France and Germany that a London summit should declare an end to the unfettered capitalism that has plunged the global economy into recession.

Opening a plenary session at the G20 summit in Docklands, Gordon Brown told the assembled heads of state and government and their finance ministers that the draft communique already on the table "reflects a high degree of consensus between us".

In comments picked up by television cameras before journalists were ushered from the hall, the Prime Minister said that the meeting should focus on paragraphs 14 to 17 of the draft text - those dealing with "global financial institutions and global regulation".

In a classic show of brinksmanship, the leaders of France and Germany threatened last night to scupper the entire G20 deal - and months of work by Mr Brown and his team - unless the summit takes meaninfgul action to regulate financial markets more closely.

Negotiators worked through the night to agree an acceptable text for the draft communique, although diplomatic sources said that there were still five separate texts doing the rounds early this morning. Today's plenary session began approximately one hour late.

Among the rules on which the G20 leaders look likely to agree are that the large hedge funds blamed for market volatility should be submitted to international supervision for the first time. More controversially, the summit could well impose restrictions on the salaries of bankers to bring an end to the risk-based bonus culture.

The summit will also agree to beef up the International Monetary Fund - possibly tripling its war chest to $750 billion, although the exact figure was still to be agreed.

The summit is likely to include a pledge to deliver "the scale of sustained effort necessary to restore growth" without making any commitments beyond the estimated $2 trillion already being spent to stabilise banks, shore up demand and limit job losses.

After already scuppering the Prime Minister's original calls for the meeting to endorse a co-ordinated fiscal stimulus, Nicolas Sarkozy and Angela Merkel said yesterday that they would refuse to sign any agreement that did not meet their "red lines", including the naming and shaming of tax havens.

Ms Merkel, the German Chancellor, also warned that failure to take meaningful action now could delay action for at least five years.

Given Britain's reliance – in the good years at least – on its financial institutions, UK negotiators have argued against setting rules that could strangle a future economic recovery at birth and hurt the City's longer-term prospects.

But Mr Sarkozy and Ms Merkel seem confident that they have public opinion on their side. The French President said that their demands were "non-negotiable".

In a joint press conference yesterday with Mr Brown, President Obama insisted that there were no substantive differences with Europe and Washington was already pushing for tougher regulation of financial markets and operators.

Although world stock prices have recovered some ground over the past few weeks, analysts were sceptical that today's communiqué would give them much of a lift.

"People will look at this and it won’t inspire confidence in financial markets," Colin Ellis, European economist at Daiwa Securities, said of the draft communiqué. "Everyone knows there is a lot of friction behind the scenes and while that exists there will be doubts about the sustainability of any recovery."

The global economy is expected to shrink more in 2009 than any year since World War Two, dropping between 0.5 and 1.0 percent, according to the International Monetary Fund, whose head, Dominique Strauss-Kahn, is calling it a "Great Recession".

The International Labour Organisation says the crisis could cost 50 million jobs by the end of the year.

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