Europe wants new global
is losing Bretton Woods, the global financial system formed
at the U.N. Monetary and Financial Conference, commonly known
as the Bretton Woods conference. In July 1944, 730 delegates
from all 44 Allied nations gathered at the Mount Washington
Hotel, in Bretton Woods, New Hampshire, to regulate the international
monetary and financial order after the conclusion of World
signed agreements to set up the International Bank for Reconstruction
and Development, General Agreement on Tariffs and Trade and
International Monetary Fund. Now, nobody wants this system,
which is why the top European leaders French President Nicolas
Sarkozy and European Commission president Jose Manuel Barroso
came to Camp David on October 18 to inform U.S. President
George W. Bush of the demise of the Bretton Woods principles.
Sarkozy said Mr. Barroso and he "have a mandate from
the 27 EU members to come here and say first and foremost
that this is a world-wide crisis and, therefore, we must find
a world-wide solution." He said they needed to discuss
a revision of the global financial system to "build together
the capitalism of the future." Mr. Barroso did not "beat
about the bush." "We need a new global financial
order,' he said.
European vision apparently is in conflict with U.S. wishes.
To cushion the heavy blow, the duo allowed Mr. Bush to say
the global financial summit would be held in the U.S.
summit, to be held after the U.S. presidential elections but
not later than December, will convene the G8 leaders, which
also includes China, India and Brazil, and possibly Australia,
South Korea and Saudi Arabia. According to the U.S. Constitution,
the new Chief Executive will assume office in January next
year, and therefore, Mr. Bush will still be President at the
time of the summit.
Bush said he looked forward to hosting this meeting, but Mr.
Sarkozy reminded him that: "Insofar as the crisis began
in New York, then the global solution must be found to this
crisis in New York." Some say the summit will be convened
in the U.N., which is not good for Mr. Bush, because the U.N.
complex on the Hudson River is officially a territory of the
Camp David meeting would have been utterly boring and unpleasant
for the Americans, if not for Mr. Sarkozy's compatriot, IMF
Managing Director Dominique Strauss-Kahn. Shortly before the
Camp David meeting, newspapers reported that Mr. Strauss-Kahn
had an affair with Piroska Nagy, an employee of the IMF's
to Times Online, the case began in January when Mario
Blejer, a senior Argentine-born economist, alleged that Piroska
Nagy, his wife, had been seduced by her boss at the Davos
their transgression was uncovered, Mr. Strauss-Kahn allegedly
helped transfer the Hungarian to a post in London at the European
Bank for Reconstruction and Development. The financial official's
romantic fling, which would have gone unnoticed in France,
has made breaking news in the U.S. Some say it was done on
purpose. British newspapers write that Paris knew about the
romantic troubles of Mr. Strauss-Kahn, who was living up to
his old name as un grand seducteur. Some politicians say "the
case had been leaked to the U.S. media to undermine the French
effort" because Mr. Sarkozy has been working with Mr.
Strauss-Kahn "to form a new Bretton Woods pact on financial
Sarkozy was reportedly furious because Paris had hoped no
news would break until Mr. Strauss-Kahn was cleared later
this month. Allies of Mr. Strauss-Kahn and some commentators
dismissed the affair as another episode of hysteria by puritanical
U.S. institutions. However, even Mr. Strauss-Kahn's indiscretion
cannot seriously influence the current situation. Europe has
snatched the initiative of creating a new global financial
order from the U.S. and Mr. Bush. The U.S. will be part of
the new order but it will not play first violin in the new
financial orchestra. And Mr. Bush will leave the White House
as a man who attended the burial of the Bretton Woods system.
who have undertaken the creation of a new financial system
face a challenging task. The trouble is that nobody, not Mr.
Sarkozy, nor the EU, China or Japan, knows what it should
look like, as proposals and ideas refuse to merge into a clear
knows that the old system is not good. It is rooted in the
greediness of banks and their clients, which cannot be eradicated
overnight, and in the mystical belief in a markets' talent
for self-regulation. It is also known that to change this
system the world must toughen control over global currency
and finances and introduce state regulation of the economy,
banks, exchanges, dealers, loans, etc.
knows that the global currency and financial organism cannot
function properly without clearly defined rules, but nobody
knows what the new model should be.
leaders must clearly outline the new financial rules, or else
they will fail just as the Bretton Woods principles did. The
Bretton Woods rules have not stopped markets and financial
institutions from misbehaving, even though the disease was
diagnosed long before.
of Bretton Woods' inadequacy is central banks' interventions
to support national currencies, investment in gold instead
of the U.S. dollar, regular convulsions and cramps on the
exchanges, tough currency regulation (currency baskets), and
regular loans taken from the IMF to cover budget deficits
(the IMF's main task seems to be to lend money to make up
for budget deficit), devaluation, revaluation, currency fevers,
and trade wars. It would be wrong to lay all of the blame
at the door of that system's authors. It was designed in the
last years of WWII, and the authors had to make do with what
little was at their disposal at the time. At the end of WWII
and for a long period after, the dollar and the U.S. were
the two strongest entities in the world.
world was comfortable with the dollar, but the situation has
changed, though the U.S. tried to convince the world it could
still be comfortable with the dollar. Americans were indeed
comfortable with it, because Bretton Woods ensured the demand
for the dollar and its stability.
the comfy time' is over, although the White House still insists
that the liberal market system can be saved through reform.
I don't think so.
Fedyashin is a RIA Novosti political analyst)