The financial crisis has exposed the weaknesses in a number of national and international financial institutions. It has also created the opportunity to develop an integrated regulatory framework for the global financial sector. However, it appears that such a framework remains a long-term goal for most countries, and that the short-term result of the crisis will be for each state to pursue its own immediate interests.
The Carnegie Moscow Center hosted J. Andrew Spindler, president & CEO of the Financial Services Volunteer Corps, Zdenek Turek, president of ZAO Citibank Russia, Citi country officer and division head for Russia, Ukraine and Kazakhstan, Carnegie’s Dmitri Trenin, and Evgeny Gavrilenkov, managing director of the Troika Dialog Group, to discuss the effects of the financial crisis on both the global economy and global politics. Natalia Nikolayeva of Citi moderated.
The crisis, which emerged in 2008, can be traced back to the ubiquitous negative interest rates and loose monetary policy of the first half of the decade, said Gavrilenkov. These two factors encouraged the excessive risk-taking that ultimately sparked the larger crisis. While extensive stimulus packages in European countries and the United States may have limited the extent of the damage done by the crisis, they have also made it difficult for countries to find the financial leverage necessary to improve their long-term economic conditions, especially when considered alongside preexisting state deficits.
While the effect of the financial crisis has been global, the extent of the damage varies across nations.
In the wake of the financial crisis, it has become clear that the European Union’s financial institutions are not yet capable of developing a coordinated and effective response to economic problems of such magnitude. It appears likely that the EU will have to develop new legislation aimed at facilitating greater cooperation on economic issues, stated Turek. Such legislation will most likely:
If these reforms are to be successful in remedying the effects of a crisis that has affected citizens across the globe, concluded Turek, their overarching goal must be to improve living standards and address the inequalities that past economic policy has thus far been unable to offset.
While Russia has been hit hard by the financial downturn, China has emerged from the crisis with new confidence and increasingly evident ambitions to join the ranks of the major powers, argued Trenin.
The crisis has created an ideal opportunity for the development of a common international framework capable of promoting equitable growth and supporting the application of new technologies in less-developed countries, suggested Spindler.
The financial crisis has demonstrated that the development of international economic regulations and institutions lags behind that of international economic integration and global market growth. While the crisis seems to have created strong incentives for the development of a more comprehensive regulatory framework that would facilitate equitable development and renewed focus on raising global living standards, such vast changes will only be achieved through consensus among the world’s most influential states. For the moment, most countries appear to be putting the state of their own financial institutions and economies first, in the hopes that international consensus on matters of a financial regulatory nature will emerge over time.