OVERCOMING THE CRISIS

Summer 2009

by Constantine Simitis

Capital markets and the financial sector must come under uniform regulatory control, both within countries and internationally. A common set of regulatory standards must be imposed so that a global market is subjected to global requirements. Global standards favour the creation of world enforcement authorities, a much needed form of international governance. The IMF has been such an authority but only for weak countries and not strong countries like the U.S. that over-borrow.

Existing world organisations must be politically realigned: their charters must empower developing countries and their mandates should focus on recovery under a regime that encourages development with reduction of inequality. Why not tax international capital gains in favor of a world stability fund? Why not agree internationally that interest on corporate debt not be “tax-expensed” after a certain limit? Taxing financial profits to build stability reserves could be the road to a stable new global order.

The crisis imposes fiscal expansion, as only states are the able to create demand. Fiscal expansion will increase world public debt but this could lead to inflation as recovery takes off, thus crippling it. Fiscal expansion must therefore be geared to investment that fuels growth. National investment is not enough, so international public goods should become a priority. International infrastructures have a network aspect: environmental protection, global health care, global education, energy management and distribution, security of transport and data transfers are examples.

Recovery and stability are not just economic goals but underlie an urgent social agenda. Regulation should be oriented towards maintaining stability and the decreasing inequality. If states, along with the private sector, are again to become important managers of social surplus, they must reform themselves, with transparency, democratic accountability and codes of conduct for public management of social goods making up the elements of a “reform for recovery”.

Further articles in this  OVERCOMING THE CRISIS section
Edmond Alphandéry	"It's up to Europe to set a global example of concertation"
Jerzy Buzek	"Let's return to the grassroots and base growth on savings and productivity"
Mark Eyskens	“My 10 point rulebook for the globalised economy”
Franz Fischler	“What we need first and foremost is a change in public consciousness”
Nicole Gnesotto	"We need a new global political deal now the West is no longer master of the world"
Béla Kádár	“To save the market economy and democracy, governance has to step in where corporations ruled and markets failed”
Noëlle Lenoir	"My five courses of action"
John Monks	“The financial markets are where the re-building must start”
Poul Nyrup Rasmussen	"The EU must pull its weight and demonstrate real leadership"
Klaus Regling	“Better regulation and supervision, and the greater legitimacy of international financial institutions”
Onno Ruding	“Implement de Larosière and then consider further reform”
André Sapir	"Restoring the health of banking is no longer a financial problem but a political one"
Tøger Seidenfaden	“We urgently need much stronger international institutions"
Constantine Simitis	“Fiscal stimuli, yes. But social goals are also crucial”
Loukas Tsoukalis	"To be a major player on the new global architecture, Europe must end its IMF over-representation"
Alvaro de Vasconcelos	"Now it's the West that needs the Rest"
George Vassiliou	"How to beat this crisis and head-off another"
Nicolas Véron	“Institutional innovation, not streamlining, is today’s priority”
Stephen Wall	“We need a eurozone regulatory structure, and if Britain wants a role it must manage its eurozone entry”
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