http://www.washingtonpost.com/business/economy/after-financial-crisis-world-leaders-regroup-at-bretton-woods/2011/04/12/AFzsHtSD_story.html
By Neil Irwin, Tuesday, April 12, 8:21 PM
April 12 (Bloomberg) – Carlo Cottarelli, director of the International Monetary Fund’s fiscal department, discusses the outlook for the U.S. federal budget deficit. The U.S. is set to have the largest budget deficit of major developed economies this year and should narrow it now rather than face tough adjustments in the next two years, the IMF said. Cottarelli talks with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)
More On This Story
After financial crisis, money leaders regroup
U.S. trade deficit narrows in Feb.
IMF official concerned about U.S. deficit
IMF official: U.S. needs fiscal adjustment
BRETTON WOODS, N.H. — Sixty-seven years ago at the Mount Washington Resort here, the world’s financial leaders gathered to try to come up with a new order for the world economy to replace the one shattered by the Great Depression and World War II.
They succeeded. The agreement they reached set the stage for three decades of relative peace and prosperity.
With the most recent financial crisis nearing its third birthday, this time there is less sense of promise about the economic future. In the coming days, world financial leaders will meet in Washington for meetings of the Group of 20 major economic powers, the International Monetary Fund and the World Bank (the latter two being creations of the 1944 Bretton Woods conference, as it happens).
There are unlikely to be any major breakthroughs this week in solving some of the nagging problems that put the world on course to the 2008 crisis, those involved with the talks said. The big imbalances that result from some countries saving too much and others saving too little will surely persist, the financial industry will continue to evade regulation by shifting operations to the countries with the most lax rules, and no solutions are at hand to contain the proclivity of financial markets to make abrupt and chaotic turns that can cause massive economic damage.
“The Bretton Woods conference was built on a foundation of optimism about the possibility of not just economic order, but political and, indeed, moral order,” said Harold James, a Princeton historian who spoke last weekend at a conference sponsored by the Institute for New Economic Thinking, where 300 economists and others gathered at Bretton Woods to debate the path forward. “There was also an urgency because it was in the last stages of a great war.
“Today,” said James, “we have neither the optimism, nor the urgency.”
But in the most recent crisis, emerging nations such as China barely experienced an economic dip at all, U.S. unemployment topped out at 10 percent instead of 25 percent in the Great Depression, and there has been no global conflict remotely comparable to World War II.
Accordingly, nations are less willing to make concessions for the sake of a more stable world economy. For China, that means being slow to move away from keeping the value of its currency artificially low to boost exports; for Germany, that means a reluctance to fully support a bailout for flailing peripheral European nations; for the United States, that means making little political progress toward reducing longer-term budget deficits.
“You ask the people in this room for five or six concrete solutions to the problems that led to the crisis, and they can come up with ideas that most people can agree on,” Andres Velasco, a former Chilean finance minister who now teaches at Harvard, said at the conference Sunday. “The problem is political.”
On reforming the financial system, major global banks have quickly returned to profitability since the crisis, but it is less clear whether rules are in place that will keep them from endangering the world economy in the future.
“I take an emotional read and say that there are a lot of smart people who think we’re closer to the starting gate than the finish line on financial reform,” said Robert Johnson, executive director of the Institute for New Economic Thinking. The group, founded in 2009 with heavy funding from billionaire financier George Soros, aims to encourage economists to undertake more useful research. (Soros supports many liberal causes, drawing attacks on the group — and on the conference — from some conservatives.)
There were no current senior U.S. officials in Bretton Woods last weekend, though former top economic aide Lawrence H. Summers and outside adviser Paul Volcker both appeared. At the meetings over the coming days, though, U.S. officials are seeking to push for gradual progress on remaking the world economy, pointing to small areas of progress and acknowledging that it is a multi-year process.
A senior U.S. Treasury official who briefed reporters Tuesday on U.S. plans for the coming meetings noted that just three years ago China resisted even including the word “imbalances” in official joint statements of world leaders. Now the word can be used, even if figuring out how to deal with them is a massive point of contention.
“I expect this process to be contentious, and it will continue to be contentious going forward,” said the official. “It’s contentious because it’s plowing new ground.”
irwinn@washpost.com
No comments:
Post a Comment