PARIS – When the heads of state of the world’s 20 largest economies come together on short notice, as they just did in Washington, D.C., it is clear how serious the current global crisis is. They did not decide much, except to call for improved monitoring and regulation of financial flows. More importantly, they committed themselves to launching a lasting process to reform the world’s financial system.
Of course, those who dreamed of a Bretton Woods II were disappointed. But the original Bretton Woods framework was not built in a day; indeed, the 1944 conference was preceded by two and a half years of preparatory negotiations, which is probably the minimum needed to decide such weighty issues. The recent G-20 summit occurred with virtually no real preliminary work.
Three tasks must now be addressed. First, a floor must be put under the international financial system in order to stop its collapse. Second, new regulations are needed once the system revives, because if it remains the same way, it will only produce new crises. Finding the right mix will not be easy. For 25 years, the world has experienced a huge financial crisis every five years, each seemingly with its own cause.
The third task is to focus on real economic activity, end the recession, sustain growth, and, above all, reform the capitalist system to make it be less dependent on finance. Long-term investments, not short-term profits, and productive work, rather than paper gains, need to be supported.