With amazing suddenness,
the world has woken up and found itself in the middle of a mess: house prices
have fallen, jobs have been axed, national banks have been bailed out,
corporations are bankrupt, and the fear of deflation is spreading. In such a
situation, all we can predict is a good many gloomy economic years to come.
Nonetheless, if it is still possible to be guided by history (and that is by no
means certain), the world will overcome this catastrophe and we shall once more
move forward. The question then is: how will global financial governance change
and what form will this take in 2020?
The only constant in such a dynamic and vibrant world is change, and global financial governance in 2020 will be very different to what we have today. It is difficult to foresee, but the future world will be largely shaped by how we get through the current crisis. In 2020, financial institutions in Japan, Europe, and emerging markets such as China, India and South Africa may supplant those of the United States as big players on the world scene. Until the middle of 2007, the US boasted the world's biggest and the most liquid financial markets. However, through the credit crunch, the world began to question the hegemonic position of the American financial institutions and realized that the US government is in tatters.
Moreover, the US is becoming much more vulnerable to the possibility of a liquidity trap. In the coming years, the battle for succession of world financial supremacy will be fierce. The US will struggle to keep its position and legacy, while Japan and Europe will try to seize every possible opportunity to replace the US and developing countries will catch up with their steady and remarkable growth and massive foreign reserves. Furthermore, countries will minimize their exposure to the US markets in order to prevent losses from another financial crisis similar to the one Asia has been facing since the Asian Financial Crisis of 1997. The US' influence on global financial governance will persist, at least for a while; however, it is just a matter of time before the financial world becomes multi-polar.
As the global order is highly likely to be shifted, Europe may say adieu to the European Central Bank. The European Economic and Monetary Union has been walking down the rocky road since its establishment. The blueprint of the union was largely drawn up by intergovernmental bargaining between France and Germany, and like many compromises between intransigent parties, it pleases nobody. When the Council of Ministers failed to apply sanctions against France and Germany for running excessive deficits in 2003, this proved that the union was dominated by economically big countries and embarrassingly displayed its underlying weakness for all to see. Furthermore, since the current crisis has worsened, European countries have been busy rescuing their banks instead of cooperating in a united European effort. Until the crisis is over, European countries will adopt more inward looking economic policies. Due to the loss of monetary autonomy, they will find themselves with limited policy options, and small countries that have little influence in the union will become increasingly dissatisfied with the system. Frustration caused by the loss of monetary autonomy and political inequalities between members of the union, will eventually lead to its demise along with that of the European Central Bank. The Euro may remain, but it will hold different values from country to country.
Global financial governance in 2020 seems set to be much more complex and diverse than it is now. In relation to the future financial world, some have suggested that international financial institutions such as the IMF and World Bank will become obsolete. Others have argued that the US will carry on its global financial supremacy. Some even predicted a world central bank and a single world currency. In any event, the scale of what is now happening is so great that we have no historical precedent to enable us to predict, with any degree of certainty, what the ultimate outcome will be. We may see the end of neo-liberalism or even of the capitalist system. But what is certain is that prudent government policy is needed.
Soyen Park is a native Korean currently pursuing an MSc. in Global Governance and Diplomacy at the University of Oxford. Her academic interests include international political economy, financial markets, and public governance.
This article has been shortlisted for the Atlantic Community's "Global Governance in 2020" student competition.
Related material from the Atlantic Community:
- Mansur Seddiqzai: Reining in the Nation State
- Tobias Weise: Global Governance in 2020: the Return of the State
- Atlantic Memo:A Supranational Approach to Rescuing the Global Economy