Let National Leaders Inspire in Financial Turmoil

On November 15, world statesmen are gathering in Washington, DC to debate about global recession and a much needed change in the global financial architecture. This fall's summit, which should impose a new Bretton Woods order, is not the first international response to the financial crisis. Much has already been discussed in the UN, the IMF, the World Bank, the Financial Stability Forum, the Basel Committee for Banking Supervision, G7, and G20. Besides negotiating, actual measures showing international generosity and solidarity have been taken. Just during the last month, the IMF poured millions of dollars into various parts of the globe - $2.1 billion in Iceland, $16.5 billion in Ukraine and $15.7 billion in Hungary. Pakistan and Belarus might receive a financial boost in upcoming days too.

Solutions are being sought on the international level, because the problems are also international. Many prominent economists, including Nobel Prize laureates Joseph Stiglitz and Paul Krugman, have asked how to cope with almost unprecedented economic slowdown. Their message is clear; the world needs a working international body which should warn us about the next crisis in advance. Despite some differences, all their suggestions have one thing in common; they contain the word "global".

This trend towards international action seems to be natural under inconvenient economic conditions. Countries drowning in their economic problems need help, since nations often can't help themselves. During conflicts and crises affecting the entire world, national leaders rapidly understand that they are interdependent on the other actors. Historically, in the 20th century, we can observe that this phenomenon appears after deep recessions; for instance, after WW1 and WW2, the Great depression of the 1930s, or the collapse of the Soviet Union. No wonder that recently the call for common action is loud, too. Not surprisingly, nowadays all the existing fears of losing sovereignty have been disappearing and nation-centered thinking has subsided.

What is more, wider international cooperation usually starts with economic agreements. In post-war Europe the first stirrings of today's European Union consisted of agreements in the coal and iron industries. Nobody at that time thought that the European Parliament or European Commission could emerge and cope with a non-economic agenda, including Schengen passport-free zone guaranteeing free movement of persons within the continental EU or cutting car emissions of carbon dioxide by a fifth. The same expansion of attention might result from the recent financial crisis. Cooperation on an economic basis can result from an effective supranational body dealing with a wider range of issues.

Right now, the world is actually hungry for solutions of other global issues. In particular, the upcoming year 2009 will bring together statesmen to Copenhagen who are worried about the rising level of CO2 and will mobilize American peace-lovers concerned about proliferation of nuclear weapons and ratification of the Comprehensive Test Ban Treaty (CTBT).

Before reaching any compromise with a bunch of foreign countries, though, people need to experience a threat like a decrease in their living standards, which has been the case in the financial crisis. Despite early warning voices from economists, the world only started to franticly react after the first symptoms clearly emerged. Nobody knows whether the Copenhagen protocol or the CTBT will reap more success than former similar agreements, but these attempts to regulate global issues could succeed this time thanks to the recent cooperation and financial altruism demonstrated donating to collapsing states. A spillover from the financial field to other areas might just happen.

I would like to thank Scott Hoffman for his helpful advice and careful editing of my blogpost.