The Greek debt crisis: how the international community can help
To help end the Greek debt crisis, Europe and America must jointly step in to shore up global financial regulation.
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For America, a weak euro means a rising dollar. That, in turn, means a rising US trade deficit – which will not help America’s economy rebound. If the EU – still America’s biggest trading partner – should falter, the consequences in Europe would be palpable.Skip to next paragraph
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That is why Europe and America must say “enough is enough” to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system – not to mention the human consequences of lost jobs, foreclosed homes, and decimated pensions.
These market manipulations – which were at the heart of the banking system’s collapse – are still legal practice. It is hard to fathom that we have allowed this to happen.
It is common sense, enforced by insurance regulators, that a person is not allowed to buy fire insurance on his neighbor’s house – and then burn it down to collect on that insurance. Yet that is exactly what is done in the market for credit default swaps. It is the scourge that has led banks to foreclose on the homes of millions of Americans. It is the scourge that haunts Greece and all of us.
But if Europe and America jointly step in to shore up global financial regulation – and to finally ensure enforcement of regulations – we can curtail such activities.
It is an encouraging sign that the American authorities have ordered some speculators not to destroy records of their trading in euros. The US authorities should continue to pursue these investigations.
Since the 1980s, we have witnessed a succession of global financial crises – the third-world debt collapse, the US savings-and-loan debacle, the Asian financial crisis, the high-tech and housing bubbles, and now the worst global recession since the 1930s. Globalization – which promised so much, and opened so many doors to those of us with the good fortune of advanced educations and careers – has also brought new inequalities and new risks.
This crisis, therefore, is an opportunity to correct many of the excesses of globalization. It calls for deep structural changes to our global institutions and our system of global governance.
We cannot afford to squander another opportunity to make the critical changes that our current reality demands. Decisive and collective action and regulation is urgently required if global economic growth is to be sustainable. We need global coordination of monetary policies. If we let market forces alone dictate the terms, our economic recovery will almost certainly slip into reverse.
Together with my European partners, we have taken a common initiative to strengthen financial regulation, particularly vis-à-vis speculation. We need clear rules on so-called shorts, naked shorts, and credit default swaps. I hope that there will be a positive response from the American side of the Atlantic to bring this initiative to the Group of 20.
It is time to make the markets work for us, not the other way around.