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Unprepared for next crisis, world must cooperate

Author  :  ZHAO YUAN     Source  :    Chinese Social Sciences Today     2018-10-12

LONDON—The Organization for Economic Cooperation and Development’s (OECD) recent article on the 2008 financial crisis points out that the conventional economic analyses and models were insufficient to address the complexity of the modern global economy. Only a few warned about unsustainable debt and the housing bubble, and most economists failed to appreciate the dependence of the financial sector on the real economy and therefore failed to predict the crisis.

On the tenth anniversary of the financial crisis, it is high time to reflect on the lessons learned regarding financial governance. What have been the impacts of the financial crisis, and what challenges will arise in the future? Several scholars shared their views with CSST.

Jonathan Cribb, senior research economist of the Institute of Financial Studies, said that in 2008 the financial crisis broke out and was followed by the greatest recession experienced in much of the Western world since World War II. Cribb contended that “What has proved most remarkable about the crisis and recession, though, was not its initial scale, but the persistence of its effects.” Even though the UK economy has experienced an eight-year growth, it has been growing slowly by historic standards. Additionally, the public debt is increasing. “The crisis precipitated what has proved to be a big and permanent hit to the size and structure of the UK economy,” said Cribb.

The World Bank’s recent Global Economic Prospects report suggests that the rise of trade protectionism increases policy uncertainty and geopolitical risk. In addition, the possibility of future global market volatility will intensify, leading to the increased vulnerability of economies in the face of market turmoil.

JPMorgan predicts that the next financial crisis may strike in 2020. In the report, JPMorgan pointed out that due to the lack of market liquidity, asset performance may not reach the historical average level during the crisis period.

Former UK Prime Minister Gordon Brown told the BBC that the world is not ready to deal with another financial crisis. Mr. Brown believed that if the crisis strikes again, the world might lack the necessary monetary and fiscal space, as well as the motivation to rescue economies from the recession. But the most worrying aspect may be the lack of international cooperation to confront global crisis. Mr. Brown denounced the lack of a national warning system that could see the full picture.

Steve Keen, a professor of economics at Kingston University, said that the soaring global debt levels could risk another crisis. Economists need to change their perspective and tackle the real challenges worldwide.

Malcolm Knight, a distinguished fellow of the Centre for International Governance Innovation in Canada, stressed that as the connection among global economies gets tighter and broader, countries and global financial institutions should enhance their financial governance policy cooperation. An appropriate framework for macroeconomic governance should include both plans for the implementation of major strategic policy changes in order to meet unforeseen developments and plans for the provision of regular, consistent policy advice to member countries.

Arancha González, executive director of the International Trade Centre, contended that trade governance could be enhanced by bilateral agreements, regional agreements and agreements within the WTO. For instance, governments could define shared parameters for policies to encourage emerging digital technologies such as artificial intelligence. Clear global policies would reduce trade tensions, solidify incentives to invest and create a fairer playing field.

 

 

 

 

 

 

 

 

Editor: Yu Hui

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