Financial Markets Must Not Return to “Bad Old Ways”
Shortly before the G-20 Summit in Pittsburgh, José Manuel Barroso, president of the European Commission (the executive branch of the European Union), sent a letter to the new prime minister of Japan, Yukio Hatoyama, welcoming his recent essay on globalization, saying that Europe’s and Japan’s visions were “converging.”
Hatoyama had criticized United States-led “market fundamentalism.” In that essay he said European integration was a model for a new Asian community. At the United Nations, Hatoyama raised his vision of an East Asian community with Chinese President Hu Jintao.
Like Hatoyama, Barroso believes that, after the crash caused by the excesses of unregulated financial markets, globalization requires global governance. Here is what he had to say for NPQ’s weekly Global Viewpoint column in advance of the G-20 meeting in Pittsburgh last September.
Brussels—The crisis that we face is not just an economic crisis. It is a crisis for the values of our societies.
World leaders must respond to that crisis of values by demonstrating our commitment to a greener, more ethical, more equitable and better balanced world economy.
This “new globalization” requires global governance, based on universal human values and reflecting the reality of economic interdependence.
The G-20, now the main worldwide forum, gives us the chance to shape globalization. The chance to develop a sustainable model to replace the one brought to its knees by the failure of financial markets is at hand.
I believe Europe has a lot to offer as we develop this new global architecture. We have been for 60 years a laboratory for cross-border supranational cooperation. The European model of society strives to surpass the destructive dichotomy of unregulated markets or over-powerful states.
In Europe, before each G-20 meeting, European Union leaders have publicly adopted a clear and united position. We have sought to build partnerships, further cementing the ever-closer transatlantic relationship and our rapidly developing links with emerging nations.
We cannot and should not seek to stop globalization. It has created enormous wealth and pulled much of the world out of poverty. Business dealings and cultural exchange have replaced isolationism and mistrust.
Previous economic crises have led to rampant protectionism—and, at worst, to conflicts that have killed tens of millions. This time, in the globalized age, we are working together around the table rather than facing each other on the battlefield.
There are signs that, with the right policy decisions, we can achieve gradual recovery in 2010. But the noble rhetoric of change must not revert to “business as usual” once immediate economic pressure relents.
If recovery is to last, the G-20 must step up a gear in reforming financial markets, with zero tolerance for any return to the “bad old ways.”
Europeans are horrified by banks—some reliant on taxpayers’ money—once again paying exorbitant bonuses. In Pittsburgh, the EU will call for coordinated action to stop this, building on measures already taken in Europe and elsewhere.
This is not a witch-hunt against bankers. More effective regulation is in the interests of any responsible financial sector, and prudent financial institutions must not be at the mercy of their competitors’ recklessness.
The European Commission is pushing forward a blueprint for a European system of cross-border financial supervision. We believe that it can serve as inspiration for a global system based on similar principles.
Meanwhile, we must keep our resolve. We must carry through the economic stimulus that has ensured recession has not turned to depression. Our number-one priority must be saving and creating sustainable jobs.
But the G-20 as a whole must commit to coordinated exit strategies when the time comes, to get government finances back to health. G-20 members must also take responsibility for rebalancing global growth and demand to help prevent future crises.
There should be a strong role for the International Monetary Fund. We have now delivered the promise made at the London summit of $500 billion of new resources at the IMF’s disposal. The EU will be providing over a third of this. The Pittsburgh meeting must put more flesh on the IMF’s reinforced surveillance role.
The G-20 must also make progress on reforming IMF quotas and representation. All the world’s largest economies should have a voice commensurate to their size. They must also shoulder the responsibilities that go with that.
Europe will be pushing hard for significant progress in the fight against climate change. If we do not win that fight, economic progress will ultimately count for nothing. The Copenhagen climate change conference is upon us, and it is time to get serious. I am worried about the lack of ambition in the negotiations.
To make progress, we need to talk figures. We have already put on the table our ideas on climate finance. Others must contribute proportionately. This is not the time to have our cards close to our chests.
Europe’s message to the developing world is that if you are serious about the challenge of cutting emissions, we will be there to help. Not with a blank check, but with a fair proposal.
Our message to the developed world is that we need to make a credible financial commitment to the developing world together with our own mitigation commitments. The equation is straightforward: no money, no deal. But no actions, no money!
We need to put in place a proper global carbon market, not as an optional extra but as a prerequisite for turning commitments into cuts in emissions.
The text that is currently on the table contains 200 pages with a feast of alternatives and a forest of square brackets. Let’s be clear: If we do not sort this out, it risks becoming the longest suicide note in history.