EU leaders call for Bretton Wood II

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.

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8 thoughts on “EU leaders call for Bretton Wood II

  1. I don’t think they’re talking about a reurn to the gold standard, terje, particularly so since major countries have dumped their gold.

    What they’re talking about is something quite different such as some global EMU.

    It won’t happen as this will be seen as an attempt by the european to dump their own problem with the Euro on the rest of the world.

    The Euro is quite possibly going to break over the next several years.

    Furthermore the US won’t have a bar of it especially when it they see it as an attempt by the Euros to try and dump the PIGS on the rest of the developed world. PIGS … Portugal, Italy, Greece, Spain.

  2. I fully expect the US to oppose any retreat from currency chaos. Unfortunately the US likes the freedom to devalue and the freedom to abuse others that devalue. However I also share your scepticism JC about what the Europeans are really on about. Mind you if somebody smart can come up with a good monetary plan for the world and the European socialists can convince themselves that it is a system for “taming capitalism” it may be that they can be co-opted into a good cause.

    Even if some nation occasionally leaves the Euro (logistically no simple matter given the need to print and distribute an alternative) I think the Euro will hold for many, many, many decades and that in the interum it will do a lot of good. I certainly can not see any good reason to wish for it’s demise. Unless you’re a currency trader perhaps. 😉

    The major failing of Bretton Woods 1 was that the US dollar had such a privaledged position. That was a natural outflow of the fact that the US represented so much of world production and it was such a large nation as well. Any revived version today would need to deal with near equal billing that the Eurozone could reasonably claim.

  3. There is quite a lot of scholarship done on the possibility of a post-Bretton Woods world currency; who would benefit and who would lose, what it would cost and how it would be beneficial. The problems are many, including loss of seignorage for the U.S. dollar, loss of currency sovereignty for everyone participating, cheating on fiscal and monetary targets (such as France and Germany do now) and establishing standards for which nations get to join such a currency regime.

    One idea not addressed yet in the economic papers on a world currency is the concept of a unifying currency used by those nations with the best record on human rights. Since all such nations are also among the world’s most prosperous countries, such a currency would quickly dominate world trade. Let’s call such a freedom/human rights currency, the ‘Huro.’

    Backed by gold? Impossibly deflationary; no political party in Europe, Asia, or North America is ever going to survive the millions of their citizens thrown out of work for returning to a gold standard. Besides, in neo-classical theory, what is important is that the currency be ‘hard,; not that it be gold-backed.

    Who’s in, who’s out? IN: Nations with the best human rights records, especially pertaining to an established tradition of free open inquiry. OUT: Everyone who cannot meet standard number one.

    In response, watch OPEC howl. Hear the Chinese scream. Look for the Russians to propose a counter-currency, one not based on human rights at all. Zimbabwe will want the contract to print the counter-currency, and Venezuela
    will insist the the counter-currency by named after Che Guevarra. North Korea will demand that the counter-currency, the ‘Che,’ include pictures of nuclear missiles lifting off, and Iran will require that the ‘Che’ be purified by not being exchangeable in Israel.

    However, nothing in the Bretton Woods history suggests that this recent BW II will have any more success than BW I, which fell apart even as the creating documents were being signed.

    Australia: how do you like the idea of a ‘Huro’?.

  4. I can’t see the point of bring human rights into this. Are you suggesting that people who live in a country where they risk abused by their government should also be subjected to monetary problems? If so then why?

  5. I was in the UK last week and many pollies on both sides were talking about a return to Keynes to sort out the mess.

  6. I would not mind a return to Keynes so much, however a full on return to Keynesianism would be terrible.

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