I have been told that the Chinese character for crisis includes the character for opportunity. Perhaps the current crisis does include an opportunity for some meaningful reform of the global financial system.
On September 25, French President Nicolas Sarkozy announced, “We want to build the beginning of a new financial world as they did in Bretton Woods.” Brown, German Chancellor Angela Merkel, and Italian Prime Minister Silvio Berlusconi came to agree, and the EU as a whole got behind the idea. Sarkozy proposed a deadline for “the end of November” for such an agreement to be ironed out.
Leaders of the world’s richest nations and biggest emerging economies are set to gather in Washington on November 15 for an unprecedented summit on tackling the global financial crisis. Their aim is to discuss a new international financial architecture.
The leaders are not necessarily in consensus, however, as to whether a “Bretton Woods II” means returning to the principles of the old one, or overhauling the old one in favour of a new one. ECB President Jean-Claude Trichet took the former view, saying in a speech delivered in New York, “Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline.” Sarkozy, by contrast, has called for an overhaul. He reportedly said in an interview, “We cannot continue to manage a 21st century economy with 20th century tools.”
In a senate enquiry (circa 1997 if I recall correctly), Alan Greenspan, the then head of the Federal Reserve, said he supported a return to the gold standard however he didn’t have the numbers on the FOMC to make it happen. Now we have the head of the ECB making sounds that indicate he is favourably disposed in that direction. Interesting times.