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I would have preferred the summit to tell the eurozone that it needs to solve the crisis on its own, given that it has the financial capacity to do so. The actual outcome of the summit leaves us in a void, with no crisis resolution strategy in place. In the previous decade, the old Group of Seven failed to prevent various financial crises. This decade, the G20 is failing to solve them.
Just as the eurozone is a microcosm of the global economy, the dysfunctional G20 is a macrocosm of the European Council. Its members, European Union leaders, also gather for high-profile summits. Each time they promise comprehensive solutions and fail to deliver. The parallels are remarkable.
My own interpretation is that the various global crises require solutions outside the standard political space. Bringing an end to the eurozone crisis would require a central bank that acts as a lender of last resort, a common European bond market and, ultimately, a fiscal union with a high degree of labour and product market integration. However, these measures are at present inconsistent with national constitutions, European treaties and political preferences. Paul Krugman, the economist, recently explained the problem in terms of what he called the “Euro Venn”. The intersection between politically-acceptable solutions and those that would solve the crisis is zero.
Creating the G20 and extending the IMF seemed the pragmatic response to the global financial crisis – just as the EFSF seemed a pragmatic response to the eurozone debt crisis. But neither is working. Both the eurozone and the global economy need more fundamental reforms than the cosy political processes currently in place are able to deliver. Unless we are ready to reverse monetary integration and financial globalisation, and accept the economic and political consequences, there is no alternative but to create a new institutional framework, with new rules, both within the eurozone and at global level. Our policies have run out of control.
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