Azerbaijan, Baku, 28 October / Trend corr. E.Ostapenko, A.Badalova/ No efficient measures to settle the financial crisis and re-form the global financial system must be expected from the anti-crisis summit to take place in Washington on 15 November, experts say.
"They will eventually come up with something, but it will fall very far short of a New Bretton Woods," Jeffrey Frankel, Professor of Capital Formation and Growth at Kennedy School of Government, Harvard University, said to Trend via e-mail on 28 October.
The Washington meeting to involve the "Great Twenty" countries will discuss the causes of the crisis and will estimate the measures being taken to eliminate it. The participants will try to achieve an agreement on the principles of reforms required to prevent a repeated crisis and to provide global prosperity in future.
The Bretton Woods system was adopted at the UN conference attended by 44 countries in Bretton Woods city, USA, in 1944. The conference established a new format of financial system envisaging development of the global economy in further 30 years. Fixed exchange rates of world currencies was one of the provisions of the system.
Experts believe it is unreal to expect any concrete decision from the Washington meeting, for a unified decision requires the countries covered by the crisis to give a part of their commissions to international financial bodies.
There will be no fundamental reform unless the United States can accept that it may occasionally have to defer to some international authority, said Dean Baker, Co-Director of the Centre for Economic and Policy Research, Washington. "There is zero willingness in the United States to accept this possibility at this point, which means that any commitments to change will be largely cosmetic."
Editor of the SubmergingMarkets and economist James Henry believes the unwillingness of the United States, including the key official on these issues, Treasury Secretary Hank Paulson, have little appetite for the kind of fundamental "re-regulation" of the global financial system that is required.
"In the waning days of their power, they will go on fighting fires just like they have been doing so far, on an ad hoc basis. They are not about to pursue the far-reaching reforms that are needed," said Henry.
Unordinary character of the crisis makes it difficult to make a unified decision and to find a way out of the situation.
Iwan Azis, Adjunct Professor, Johnson Graduate School of Management (JGSM), Cornell University, believes the current crisis is much more serious than those of 1990s.
"The economic theory of financial crisis is based on the assumption that there are two sets of countries, those in crisis and those that are not in crisis," Azis said to Trend via e-mail. "But this time, there is only one set of countries, i.e., crisis countries. What is needed now is a real major overhaul in the global financial architecture that should no longer be based on the standard macroeconomic policies of a crisis."
"The biggest mistake of all the policies taken so far (by the US and the European countries) is that they focus only on the financial sector, i.e., how to rescue financial institutions. True that the core problem was in the financial sector, but the intricate links between financial sector and the real sector of the economy seem overlooked in the approach," Azis said.
Senior Policy Analyst of European Policy Centre Fabian Zuleeg believes it is inefficient to develop a hasty long-term strategy in response to the crisis.
"A much longer term look at the global financial system and cooperation/coordination will be necessary," said Zuleeg.
The global financial crisis resulted from the failure of the U.S. credit policy, which was based on crediting all layers of the population, including the risk groups. The U.S. banks went bankruptcy, since the price for re-sold realty turned to be much higher than its real price. As the financial systems of the United States and Europe are closely interrelated, the crisis affected the financial institutes in Europe.
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