Sir,
As we now know, John Monk’s article was remarkably well-timed – excessive financial speculation was about to push global capitalism onto its knees, with incalculable ramifications for economies the world over. Hungary has the dubious distinction of being one of the worst affected nations. Heavily indebted and with low reserves, the international crisis hit our defenceless economy like a hammer. It will take decades for Hungary to pay off the $25bn bail-out agreed with the International Monetary Fund, the European Union and the World Bank. The burden is particularly heavy because it is the second time around for this generation of Hungarians: the communist dictatorship accumulated massive debts during the 1970s which also hung over our country for decades.
The question faced by the world’s political elites is what to do about the crisis now. The first step must be a comprehensive evaluation of what went wrong. The international investment culture, which chased ever higher profits in ever shorter time spans, must clearly shoulder much of the blame. The general belief that global money and capital markets are capable of self-correction has now vanished, along with other doctrines of neo-liberal economic policy. The public no longer trusts banks; the reputation of auditing companies has been damaged and many state institutions have been criticised.
We need to understand, too, why so many warning signs were ignored. It had become evident that market mechanisms were getting out of control well before the financial crisis exploded. Obscure money-making schemes which multiplied investments could no longer be valued or even clearly expressed, and the paper trails of international finance could no longer be traced. It was only a matter of time before stock exchange bubbles that had been feeding off each other would finally burst.
Yet no one tried to model these accelerating trends or construct a system of brakes. The American leadership and the U.S. Federal Reserve behaved like dormant partners in the developing crisis. The majority of countries, including Hungary, were unprepared when the meltdown came, and only reacted very late.
The world’s political elites need to act on the serious lessons there are to be learnt from these events. We must create a protective umbrella to shelter nations and help them resist any economic deviance of this sort in the future. We need to recreate a business climate where employers and employees can once again make sensible calculations. Short-term attitudes must be replaced by a culture dedicated to safety and governments must resist the urge to provide quick economic fixes to satisfy short-sighted electorates. The task of our age is not only to redefine our goals, but also to redesign the tools with which to achieve them.