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If it’s one thing the world has learned from the recent financial crisis, it’s that the economy is far more global in nature than ever before.
“The crisis itself has been an extraordinary demonstration of the fact that when it comes to finance, and economy we are now global,” said Jean-Claude Trichet, president of the European Central Bank.
Speaking at an April 27 event sponsored by the Chicago Council on Global Affairs and Chicago Booth’s Initiative on Global Markets, Trichet said the world almost immediately felt the impact of a $144.5 billion withdrawal from money market accounts in a single week in September 2008, leading the U.S. government to take the drastic step of extending insurance on money market accounts similar to its federal bank deposit insurance program.
“One single event, September 2008, could impact in real time the entire world,” Trichet said. “For the first time, we could see such synchronization of economies all over the world. It was a question of days — or half days — for this single event to be channeled through the entire world. It was the first time that we could really see that there was a global economy.”
Given the now global economy, Trichet said, governments need to work together to institute common rules and regulations in order to stave off future economic disasters. “We need to have a level playing field; we need to have the same rules in the various countries,” he said. “Absence of a level playing field in this area will be a recipe for vulnerability. This is a thing which is easy to say; it’s much more difficult to implement.”
The growth of the Group of Twenty, and its replacement of the Group of Eight as the main economic council of wealthy nations, “is a positive step” because of the G20’s inclusion of industrialized as well as emerging nations, Trichet said.
Another step needed in order to move beyond the crisis is for countries to carry out tough decisions to diminish their debt, which, in some ways, are a result of the “bold” moves governments took to stimulate the economy and prevent massive depression following the crisis.
“It is of extreme importance that the executive branches are able to say that we have a way to get back to sustainability,” Trichet said. “If we are not able to show our own people that there is a strategy to get back to sustainability in the medium term, it seems to me that we will miss what is more important than any other ingredient in the present episode of our economy, which is confidence.
“Having a strategy to get back to sustainability is not playing against the economy; it is playing for the economy.”
Michael Moskow, the vice chairman of fhe Chicago Council on Global Affairs and a senior fellow on the global economy for the organization, said it was invaluable to hear Trichet’s perspective on the crisis.
“We’ve seen the depth of the recession,” Moskow said. “We’ve seen the extraordinary measures that policymakers have taken. We’ve seen the concern about the huge buildup of government debt. We’ve seen concerns about inflation. And we’ve seen concerns about ensuring financial stability to try to minimize the chances of another financial crisis in the future. Jean-Claude Trichet has been a tower of strength during this unprecedented period.”
—Patrick Ferrell