Sixty-four years after the meeting at the Mount Washington Hotel in Bretton Woods, N.H., that remade the global financial system, we are witnessing a financial crisis whose magnitude calls into question the very system put in place in Bretton Woods.
Led by the then-Big Three powers — the United States, United Kingdom and Soviet Union — the 730 delegates at the July 1944 United Nations Monetary and Financial Conference established rules, institutions and procedures to coordinate monetary policy in hopes of avoiding a repeat of the worldwide economic meltdown of the 1930s that set the stage for World War II. The Great Depression was so devastating for developed and developing countries alike that in its aftermath freewheeling market economics gave way to government intervention in the economy, more so in Europe than in the United States.
On Saturday, Oct. 18, at the Camp David mountain retreat in Maryland, President Bush, French President Nicolas Sarkozy and European Commission President José Manuel Barroso agreed to a Bretton Woods II of sorts. President Bush will host, possibly this month, an emergency summit of leaders from the Group of Eight nations — the United States, Canada, Britain, France, Italy, Germany, Russia and Japan — and from leading developing countries, including China, India and Brazil, to confront the current global financial crisis. The newly elected president of the United States also will attend.
Sarkozy wants everything revamped. “We must look on the fundamental rules that will apply to this twenty-first century of ours. We live in the twenty-first century, but we continue to apply twentieth-century rules. Hedge funds cannot continue operating as they have in the past; tax havens, neither; financial institutions that are under no supervisory control — this is no longer acceptable, this is no longer possible,” he said.
Barroso, too. “The international financial system, its basic principles and regulations and its institutions, need reform. We need a new global financial order… It’s precisely because if you live in open societies and open economies, open societies need rules, the rule of law, the rule of democracy,” he said.
Wincing, Bush warned, “As we make the regulatory and institutional changes necessary to avoid a repeat of this crisis, it is essential that we preserve the foundations of democratic capitalism — a commitment to free markets, free enterprise and free trade. We must resist the dangerous temptation of economic isolationism and continue the policies of open markets.”
To which Sarkozy retorted: “The president of the United States is right in saying that protectionism and closing one’s borders is a catastrophe. He is right to say that it would be wrong, catastrophic, to challenge the foundations of market economics. But we cannot continue along the same lines because the same problems will trigger the same disasters…Once calm has been restored, we must avoid at all costs that those who have led us to where we are today should be allowed to do so once again.”
He continued, “We believe in the capacity and the ability of the American people to come up with the answers the world is waiting for, is expecting, because this sort of capitalism is a betrayal of the sort of capitalism we believe in.”
And so, amid calls for coordination are the rumblings of discord.
Mr. President, welcome your presidency.