Stanley's blog

Europe’s hour is coming?

President Bush, Nicolas Sarkozy (current EU President) and EU Commission President Manuel Barroso, met at Camp David on 18 October to discuss the continued coordination of steps needed to solve the crisis in today’s global economy. They agreed to reach out to other world leaders with the idea of beginning a series of summits on addressing the challenges facing the global economy.

World leaders will be consulted about the idea of a first summit of heads of government to be held in the U.S. soon after the
U.S. elections, in order to review progress being made to address the current crisis and to seek agreement on principles of reform needed, to avoid a repetition and assure global prosperity in the future. Later summits would be designed to implement agreement on specific steps to be taken to meet those principles.

Sarkozy and other European leaders wish this meeting to include the G8+5 leaders (Canada, France, Germany, Italy, Japan, Russia, US, UK; Brazil, China, India, Mexico,
South Africa) and an Arab country.

There are serious differences between the Americans and Europeans as to how far reforms should go and also the nature of such reforms. The EU seeks a fundamental reform of the present system (a ‘Bretton Woods II’) and a worldwide supervision of the markets.

The different approaches of the French (“capitalism of the future”) and Bush (“fundamentals of democratic capitalism”) will inevitably clash. Bush recognized the need for “regulatory institutional changes” but added, “It is essential that we preserve the foundations of democratic capitalism – commitment to free markets, free enterprise, and free trade.”

In response, President Sarkozy said, “The president of the United States is right in saying that protectionism and closing one’s borders is a catastrophe…. But we cannot continue along the same lines,” he added, “because the same problems will trigger the same disasters.”

Mr. Barroso was more succinct: “We need a new global financial order.”

Europe has taken the lead in driving the movement to reform and with the forthcoming change of Administration in
Washington, The EU has a unique opportunity. Whether this will become ‘Europe’s hour’ depends on whether we are capable of maintaining ongoing leadership.

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Comments

  1. When one if free in their enterprise, one will work out the business until their business works out for them. Why do we need an world wide government program?

  2. Stanley

    I think that you are right in saying that the EU has a unique opportunity. Whether this will become ‘Europe’s hour’ depends on whether we are capable of maintaining ongoing leadership, as you say.

    But I would like to raise another issue, if I may.

    I am no expert in financial matters, but clearly the latest crisis is not the first. There have been many crises or “panics” in the past. All have had very unfortunate consequences (for example innocent people lose money, taxpayers have to bail out banks and corporations, there is a loss of confidence by business, etc…)

    These crises do not hit a single country, they hit all countries because all countries are – to a lesser or greater extent – integrated into a single global economy.

    In all previous crises – if I am not mistaken – it is national governments that have taken the main steps to resolve the crisis. It is not international bodies or global institutions that have taken the lead. The reason for this somewhat paradoxical situation is simple – there simply IS no global authority or governing body that has the power to bail out banks, to guarantee the safety of deposits at commercial banks and so forth.

    This is a paradox because a global financial crisis cannot really be dealt with at the national level. National governments will inevitably pursue their own national interests – they will put their own country first. They will not put the global interest first. After all, national governments are elected by nations and are constitutionally obliged to respond to the needs and anxieties of their own national electorates.

    I may well be wrong, but it is my understanding that this dissonance between the crisis at the global level and the response at the national level was a factor that allowed the last big financial crisis, that of the 1930s, to lead us all into the Second World War. Individual countries were responding individually – eg beggar my neighbour policies of restricting imports. They were not responding collectively to a collective problem.

    However, it is not the case, in THIS financial crisis of 2008, that all countries have acted on their own. This case is perhaps fundamentally different from that of the 1930s, in that European states acted, albeit after a couple of weeks of hesitation, as a group. In the 1930s, Germany, France, Britain et al did not act as a group – they each took unilaterally action. This unilateral action was, from a collective point of view, disastrous and took us further on a downwards path.

    But why did the Europeans act collectively THIS time, compared to the 1930s?

    I would posit that it was because there is now an institutional and political structure within Europe which did not exist in the past. I refer of course to the the Eurozone and the EU. National political leaders – Sarkozy and Brown -had at their immediate disposal structures that permitted them to respond with a force and an impact far grreater than would have been possible had their responses been purley national. They realised this and exploited the structures that were available to very good effect.

    The conclusion? Perhaps the existence of the EU and Eurozone has enabled – for the very first time – countries to transcend a national response and to formulate a more collective response. The exsitence of the EU and Eurozone has allowed us to avoid what in the past have been extremely dangerous unilateral responses to a global crisis.

    By analogy, if the EU and the Eurozone had been in place in the 1930s, perhaps the Second World War could have been avoided?

    So – can we conclude that the EU and Eurozone have allowed the world to avoid what has happened so frequently in the past (unilateral actions to the detriment of the global interest) and perhaps has steered the whole world away from what could have been a very dangerous descent into global economic difficulties?

    Is such a conclusion far-fetched, I wonder? Your views and advice on this matter would be much appreciated

    Dan

  3. Dan, thanks for responding.
    I wish that your conclusions were correct but I fear not.
    My answers to your questions are:
    We still lived in a Westphalian world in the thirties. The phenomen of globalisation – including instant communication – is the prime moving factor. The existence of the EU and the Eurozone have facilitated a collective response.

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