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Key Principles for Financial Reforms that G-20 Leaders Should Implement

11/11/2008
Working Paper
Global Governance

The financial crisis that began in the United States in the summer of 2007, and then spread to Europe, has now become global and increasingly serious. Although governments and central banks around the world have taken many costly measures, they have not yet been able to contain the crisis. The threat of global recession and the dire social consequences that could accompany such a downturn make internationally coordinated, but nationally different, expansion of fiscal spending to help maintain economic activity essential. It also calls for an urgent reform of the global financial architecture and regulatory system.

The authors argue that no fundamental–or global–reforms can be enacted if they do not arise from a process that is inclusive of both industrial and developing countries, and in which both large and small countries have a meaningful voice. In short, representative global institutions–not ad hoc groupings–must be at the center of reform efforts. Why? Any global solutions, whether short-term measures to stabilize the current situation or long-term measures that attempt to prevent future financial meltdowns, must be designed to protect not only the G7 or G20 economies but also emerging markets and, especially, the poor populations of developing nations. Otherwise, global economic stability cannot be restored, and both economic growth and poverty reduction efforts will be derailed.