December 29, 2010
All in all, 2010 was not a good year for the global governance industry. With the financial crisis pivoting from the private financial system to sovereign debt, and global current account imbalances starting to re-emerge, the world needed robust mechanisms to cope with both. Instead it got a series of inadequate short-term deals that staved off immediate crisis while leaving the bigger problems in place.
In spite of the talk of reform to the international financial and policy architecture, and particularly the continued shift towards the G20 as a forum of governance, countries have yet to show that they have the political courage to form a consensus and take tough decisions.
In response to the sovereign debt crisis that began in Greece early in the year, for example, the eurozone authorities appeared in denial for months. Finally they cobbled together a rescue package that could have been far smaller had it come earlier. While it helped with liquidity, it ignored whether Greece had a solvency problem.
And although the EU has slowly and unevenly groped its way to creating a sustainable mechanism for rescue and restructuring, the eurozone’s leaders have signally failed to show the determination to deal with the problems in front of their noses. Germany has talked a good game about making private investors share the cost of any rescues in the future. But following the Greece experience, it acquiesced to the Irish rescue package, which similarly bought short-term stability at the expense of longer-term equilibrium by failing to reduce the debt owed by the country’s tottering banks.