GLOBAL GOVERNANCE

Spring 2010

by Danuta Maria Hubner

The dynamics of crisis have fundamentally altered the architecture of the global financial system, and have also changed our understanding of it. The facts have changed, and now our minds must follow. The upshot is that we are presently undergoing a fresh learning process as to the interaction of market participants and policymakers.

This "new normalcy" requires the development of a collective capacity to steer the global economy. Until the crisis broke, unbalanced patterns of demand in the global economy could have been resolved by coordinated efforts, but as we all know, these were sadly lacking.

The growing importance of the world’s emerging economies is already shifting responsibilities for overseeing the global economy from the level of the G7/8 to G20 and perhaps G20-plus. But however many communities are eventually represented, groups such as today’s G20 will have to stay committed to maintaining an open trading system.

The major challenge facing governments across the world will be the international harmonisation of rules and regulations. If national governments seek to resist the creation of a global rulebook for, say, financial services, banks and other financial institutions will shop across borders for the friendliest system.

On the fiscal side, however crucial coordination may be, it will be practically impossible to achieve. Tax benefits leak easily across frontiers, and the free-riding that results is difficult to police. Here we will have to cope with second-best responses.

We have already seen that the fastest channel to spreading the crisis around the world was the financial marketplace. And although we knew how to stabilise volatile capital flows, the available funding was nowhere near enough. The lesson we have still to learn is that however stringent the reforms we introduce, they will not be effective unless we also back them with adequate financial resources.

 

Further articles in this GLOBAL GOVERNANCE section
Pascal Lamy	Global Governance is a challenge for democracy (but an EU opportunity)
Iain Begg	Global governance could take a leaf from the EU's book
Leszek Balcerowicz	Worldwide reform means engaging public opinion first
Robert Hutchings	Why U.S.-EU economic co-operation holds the key to global governance
Paul Tucker	Ending boom and bust: The case for macroprudential instruments
The Europe's World panel on global governance
C. Fred Bergsten	The global crisis has accelerated governance reform
Daniel Daianu	G20 could turn into a global economic security body
Kemal Dervis	G20 should increase the legitimacy of the international institutions
Jirí Dienstbier	Nation states cannot meet the challenges of deregulated globalisation
William Drozdiak	An alternative is regional institutions to act in the service of global governance
Monica Frassoni	The only global governance model that would work is federal
Angel Gurría	G20 could give the momentum needed to usher in unprecedented international co-operation
Wolfgang Ischinger	We need fundamental reform of the international institutions
Sandra Kalniete	Global governance requires predictable and fair funding
Sergei A. Karaganov	Despite its decline, Europe will be a shining example of how the world should be governed
Kishore Mahbubani	Europe provides both the problem and the solution to reforming global governance
Reza Moghadam	We at the IMF have already begun the process of reconciling effectiveness and legitimacy
Jean Pisani-Ferry	After a brilliant start, global co-operation and governance may disappoint in the years ahead
Hans-Gert Pöttering	The European Parliament must play a central role if we want a democratic model of global governance
Jiang Shixue	China would never accept the idea of a G2
Danilo Türk	We need global institutions capable of making international co-operation inclusive
Guy Verhofstadt	Integration that transcends borders is the logical response to 21st century realities
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