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| Insight: 'Bretton Woods Two'? | Insight: 'Bretton Woods Two'? |
| (about 4 hours later) | |
| By Bridget Kendall BBC diplomatic correspondent | By Bridget Kendall BBC diplomatic correspondent |
| A deep-seated global crisis is often a chance to redraw the map, reflecting shifts in the balance of power in different ways. | A deep-seated global crisis is often a chance to redraw the map, reflecting shifts in the balance of power in different ways. |
| First, the crisis can confirm or nudge ahead trends which seem to be happening anyway - like the shift of power from Western to emerging Eastern players. | First, the crisis can confirm or nudge ahead trends which seem to be happening anyway - like the shift of power from Western to emerging Eastern players. |
| Second, it can put flesh on reforms already in the air - like plans to overhaul the international financial architecture to be discussed at this weekend's summit being hosted by President Bush in Washington. China is the latest large economy to announce an economic stimulus plan | Second, it can put flesh on reforms already in the air - like plans to overhaul the international financial architecture to be discussed at this weekend's summit being hosted by President Bush in Washington. China is the latest large economy to announce an economic stimulus plan |
| And third, there are the instinctive emergency reactions, supposedly temporary, but which can end up reshaping the global chessboard for years to come - the hurried nationalisation of some Western banks, for instance, or possibly Iceland's desperate bailout appeal to Russia - a Nato member putting financial survival ahead of any security provisos. | And third, there are the instinctive emergency reactions, supposedly temporary, but which can end up reshaping the global chessboard for years to come - the hurried nationalisation of some Western banks, for instance, or possibly Iceland's desperate bailout appeal to Russia - a Nato member putting financial survival ahead of any security provisos. |
| Of course to draw firm conclusions at this point, with the economic crisis far from over, is a risky venture. But some patterns merit closer examination. | Of course to draw firm conclusions at this point, with the economic crisis far from over, is a risky venture. But some patterns merit closer examination. |
| First, is the balance of power in the world really shifting eastwards? It is a question that has been the subject of much debate recently on the discussion programme The Forum which I host for the BBC World Service. | First, is the balance of power in the world really shifting eastwards? It is a question that has been the subject of much debate recently on the discussion programme The Forum which I host for the BBC World Service. |
| My guests' general conclusion seems to be that, yes, Asia is on the rise, and the economic woes of the US and Europe have exposed the fragility of Western banking and the vulnerability of Western economies. | My guests' general conclusion seems to be that, yes, Asia is on the rise, and the economic woes of the US and Europe have exposed the fragility of Western banking and the vulnerability of Western economies. |
| China and India have been less affected. And, even if demand for Chinese goods slows, its mammoth economy can still be a powerful engine of growth and a much needed source of liquidity. | China and India have been less affected. And, even if demand for Chinese goods slows, its mammoth economy can still be a powerful engine of growth and a much needed source of liquidity. |
| Russian nerves | Russian nerves |
| And yet, in a world so interdependent economically, can any part be immune? Especially given the symbiotic relationship between China and the United States - "Chimerica" as the Harvard historian Niall Ferguson calls it: not two financial systems, but one. | And yet, in a world so interdependent economically, can any part be immune? Especially given the symbiotic relationship between China and the United States - "Chimerica" as the Harvard historian Niall Ferguson calls it: not two financial systems, but one. |
| In these terms, surely if the American and other Western economies have succumbed to a chronic bout of sneezing, flu for China and rest of world is inescapable? | In these terms, surely if the American and other Western economies have succumbed to a chronic bout of sneezing, flu for China and rest of world is inescapable? |
| Moreover, perhaps we should not overstate the resilience of emerging economies. Economists including JM Keynes negotiate the Bretton Woods Agreements | Moreover, perhaps we should not overstate the resilience of emerging economies. Economists including JM Keynes negotiate the Bretton Woods Agreements |
| Look no further than Moscow, where the stock market panic and flight of capital abroad have been dramatic, and the fall in world oil prices has added to the economy's battering. | Look no further than Moscow, where the stock market panic and flight of capital abroad have been dramatic, and the fall in world oil prices has added to the economy's battering. |
| Despite Russia's legendary energy wealth, there is a new nervous uncertainty among local businessmen who - one suspects - know more than most about the way the domestic economy remains weakened by corruption and a labyrinthine smoke-and-mirrors way of doing business. | Despite Russia's legendary energy wealth, there is a new nervous uncertainty among local businessmen who - one suspects - know more than most about the way the domestic economy remains weakened by corruption and a labyrinthine smoke-and-mirrors way of doing business. |
| A second question worth pondering - just how likely is it that this weekend's top-level meeting really will generate reform of the world's leading financial institutions? | A second question worth pondering - just how likely is it that this weekend's top-level meeting really will generate reform of the world's leading financial institutions? |
| There is grand talk of a 'Bretton Woods Two', a vision for a new financial system pushed for some time by, among others, Britain's Gordon Brown. True, there is broad agreement on an agenda to seek ways to forestall a global recession, devise an early warning system and consider more international regulation. | There is grand talk of a 'Bretton Woods Two', a vision for a new financial system pushed for some time by, among others, Britain's Gordon Brown. True, there is broad agreement on an agenda to seek ways to forestall a global recession, devise an early warning system and consider more international regulation. |
| But the leaders from 20 of the world's largest economies bring to the table a variety of conflicting interests, some motivated by practical need, others by ideological considerations, some looking for short term fixes - the move from private to state control of banks for instance - which others view as a desirable long term objective. | |
| Top table reform | Top table reform |
| So is major reform feasible? Is the current economic crisis cataclysmic enough yet to be truly transformational? | So is major reform feasible? Is the current economic crisis cataclysmic enough yet to be truly transformational? |
| The United States has been famously reluctant to accept any authority but its own. Why should this be any different? | |
| The Europeans say they are united in a call for global financial governance and greater transparency. | The Europeans say they are united in a call for global financial governance and greater transparency. |
| But a rift has opened up between those like the French President, Nicolas Sarkozy, who seek permanent global oversight of financial transactions, and wary Anglo-Saxon governments - including above all the US administration - which fear that too much control could hamper the workings of the free market. | But a rift has opened up between those like the French President, Nicolas Sarkozy, who seek permanent global oversight of financial transactions, and wary Anglo-Saxon governments - including above all the US administration - which fear that too much control could hamper the workings of the free market. |
| And even if that hurdle is surmounted, could any US president, even one enjoying such goodwill as President-elect Barack Obama, win Congressional backing for a toothy regulatory body that would have real oversight of US institutions? | And even if that hurdle is surmounted, could any US president, even one enjoying such goodwill as President-elect Barack Obama, win Congressional backing for a toothy regulatory body that would have real oversight of US institutions? |
| Whether the issue is international crimes against humanity or attempts to regulate carbon emissions, the United States has been famously reluctant to accept any authority but its own. Why should this be any different? | Whether the issue is international crimes against humanity or attempts to regulate carbon emissions, the United States has been famously reluctant to accept any authority but its own. Why should this be any different? |
| Russian President Medvedev blames American policies for the current crisis | |
| Meanwhile, the powerhouse nations of the so-called BRIC group - Brazil, Russia, India and China - and the petro-states of the Gulf (armed with the bargaining chip of sovereign wealth funds) have made it clear that what they want is recognition that the old elite clubs dominated by Western nations no longer reflect reality. | |
| Logic would suggest this means reform of the top tables not just at the IMF and the World Bank, but an enlargement of the G8 (Group of Eight most industrialised countries), and the United Nations Security Council. | Logic would suggest this means reform of the top tables not just at the IMF and the World Bank, but an enlargement of the G8 (Group of Eight most industrialised countries), and the United Nations Security Council. |
| Fine in theory. But in practice⦠| Fine in theory. But in practice⦠|
| Reforming the G8 is probably easiest. Already the annual summit opens its doors to other players. And the 2009 host, Italy's Silvio Berlusconi, has made it known he intends to invite the G20 countries to his G8 Sardinia party. | Reforming the G8 is probably easiest. Already the annual summit opens its doors to other players. And the 2009 host, Italy's Silvio Berlusconi, has made it known he intends to invite the G20 countries to his G8 Sardinia party. |
| But the weary process of reform at the UN has left many jaundiced. It is hard to imagine the mechanism which would require current global powers to agree to anything but a symbolic change. | But the weary process of reform at the UN has left many jaundiced. It is hard to imagine the mechanism which would require current global powers to agree to anything but a symbolic change. |
| The Bretton Woods Agreements Agreed in July 1944, but not all of them operative until 1959Creation of the IMF and IBRD (now part of World Bank)Encouraged open marketsObligation to maintain currency exchange rates within fixed values (to +/- 1%) Likewise at the World Bank and the IMF, the hard bargaining will revolve not just around which new countries get seats on the board, but whether they will be allowed to upset the current balance of power when it comes to decision-making. Note that already there are voices warning that too many players will make any new arrangement dysfunctional. | |
| There are other complications. Russia continues to agitate for any adjustment that will lessen US influence, whether in financial or European security matters. | There are other complications. Russia continues to agitate for any adjustment that will lessen US influence, whether in financial or European security matters. |
| No doubt President Medvedev will want to repeat his and Mr Putin's belief that the root cause of the current financial crisis lies in American unilateralism following the end of the Cold War and the 9/11 terrorist attacks - an ideological argument that may irritate rather than persuade and make consensus even harder to achieve. | No doubt President Medvedev will want to repeat his and Mr Putin's belief that the root cause of the current financial crisis lies in American unilateralism following the end of the Cold War and the 9/11 terrorist attacks - an ideological argument that may irritate rather than persuade and make consensus even harder to achieve. |
| Safety in numbers | Safety in numbers |
| And a third area of examination - what do the emergency reactions to the financial crisis so far tell us about the way the world may be heading? | And a third area of examination - what do the emergency reactions to the financial crisis so far tell us about the way the world may be heading? |
| Reactions seem to boil down to a choice of two - whether to conclude that in times of trouble safety lies in numbers and it is better to be part of a bigger bloc, or whether when the going gets hard, it is better to look after your own - the protectionist, nationalist instinct. | Reactions seem to boil down to a choice of two - whether to conclude that in times of trouble safety lies in numbers and it is better to be part of a bigger bloc, or whether when the going gets hard, it is better to look after your own - the protectionist, nationalist instinct. |
| Certainly some people seem to be concluding that size is the best security against future risk. | Certainly some people seem to be concluding that size is the best security against future risk. |
| In beleaguered Iceland, where six months ago opinion suggested a majority were against EU membership, those in favour of throwing their lot in with the EU has crept above 50%. | In beleaguered Iceland, where six months ago opinion suggested a majority were against EU membership, those in favour of throwing their lot in with the EU has crept above 50%. |
| A similar trend in Scandinavia is leading the governments in Denmark and possibly Sweden to wonder if they should think again about offering a referendum on joining the Euro. In global terms, perhaps the biggest worry of all must be what will a financial downturn mean for the world's have-nots? | |
| And in Scotland, too, recent polls have suggested support for the Scottish Nationalist Party's vision of independence has lost ground. Going it alone, it seems, no longer looks so attractive in the wake of a financial crisis. | And in Scotland, too, recent polls have suggested support for the Scottish Nationalist Party's vision of independence has lost ground. Going it alone, it seems, no longer looks so attractive in the wake of a financial crisis. |
| But at the same time, EU cohesiveness has taken a knocking. Despite early declarations of EU economic solidarity, it didn't take long for Ireland to break ranks and offer a unilateral guarantee to depositors to forestall a run on its banks, or for Germany to hint it would take similar action. | But at the same time, EU cohesiveness has taken a knocking. Despite early declarations of EU economic solidarity, it didn't take long for Ireland to break ranks and offer a unilateral guarantee to depositors to forestall a run on its banks, or for Germany to hint it would take similar action. |
| And disorderly EU bickering ahead of the Washington summit has rather belied claims of European unity. | And disorderly EU bickering ahead of the Washington summit has rather belied claims of European unity. |
| And in global terms, perhaps the biggest worry of all must be what will a financial downturn mean for the world's have-nots? | And in global terms, perhaps the biggest worry of all must be what will a financial downturn mean for the world's have-nots? |
| Fears for poor | Fears for poor |
| For all the high hopes of turning this crisis to advantage, to push through reforms that otherwise would never have been contemplated, there is a danger it could pivot in the opposite direction. And if this crisis ushers in greater protectionism, it could mean an end to an era of generosity and less concern for the welfare of others. | For all the high hopes of turning this crisis to advantage, to push through reforms that otherwise would never have been contemplated, there is a danger it could pivot in the opposite direction. And if this crisis ushers in greater protectionism, it could mean an end to an era of generosity and less concern for the welfare of others. |
| For the last decade it has been the very poor who have dominated the agenda of the World Bank and the IMF. Not any more. In the last two months, it has been Iceland, Hungary, Ukraine and Pakistan knocking at the IMF door. | For the last decade it has been the very poor who have dominated the agenda of the World Bank and the IMF. Not any more. In the last two months, it has been Iceland, Hungary, Ukraine and Pakistan knocking at the IMF door. |
| Already the UN Secretary General, Ban Ki-Moon, has sounded the alarm that his ambitious UN Millennium goals to slash poverty, illiteracy and disease run the risk of being neglected. This could 'threaten to undermine all our achievements' he said recently. | Already the UN Secretary General, Ban Ki-Moon, has sounded the alarm that his ambitious UN Millennium goals to slash poverty, illiteracy and disease run the risk of being neglected. This could 'threaten to undermine all our achievements' he said recently. |
| Just this week the World Food Programme warned it was having to cut food aid to impoverished Zimbabweans due to a lack of international donations. A harbinger of things to come, perhaps. | Just this week the World Food Programme warned it was having to cut food aid to impoverished Zimbabweans due to a lack of international donations. A harbinger of things to come, perhaps. |
| And there is a broader implication - that it may become increasingly difficult to persuade nations to sign up for large-scale interventions to help the desperate and the victimised. If a global recession cannot be avoided, the United Nations' much vaunted "responsibility to protect", only recently enacted, may end up already becoming an outdated aspiration. | And there is a broader implication - that it may become increasingly difficult to persuade nations to sign up for large-scale interventions to help the desperate and the victimised. If a global recession cannot be avoided, the United Nations' much vaunted "responsibility to protect", only recently enacted, may end up already becoming an outdated aspiration. |
| You can listen to the BBC World Service's The Forum with Bridget Kendall class="bodl" href="http://www.bbc.co.uk/worldservice/indepth/the_forum.shtml">here. |