The Limits of Global Economic Governance after the 2007–09 International Financial Crisis
| Published date | 01 June 2017 |
| DOI | http://doi.org/10.1111/1758-5899.12430 |
| Date | 01 June 2017 |
| Author | James M. Boughton,Domenico Lombardi,Anton Malkin |
The Limits of Global Economic Governance
after the 2007–09 International Financial Crisis
James M. Boughton, Domenico Lombardi and Anton Malkin
CIGI
Abstract
The economic and financial crisis of 2007–09 uncovered serious deficiencies in the oversight of the global economy, some of
which came to light quickly and induced a concerted response by national authorities and multilateral institutions. Foremost
among them was the need for appropriate regulation of financial institutions and oversight of derivative financial instruments.
In this area, the G20 led a response that is still underway. Meanwhile, new regional entities emerged to challenge the existing
multilateral order built around the IMF, the World Bank and the WTO –a development that has prompted further attempts to
reform the current framework, including the creation of new institutions. These responses, however, have left major gaps in
global financial governance. We argue that these gaps include: the balkanisation of oversight over global capital flows and
current account imbalances; inadequate international burden sharing and policy coordination in response to financial crises;
and a persistent inability of global institutions and national governments to ensure that the gains and losses from financial
globalisation are equitably distributed across and within countries. Looking forward, the G20 and relevant multilateral institu-
tions need to broaden the agenda to ensure that economic growth can become more resilient to shocks, more generally
shared across economies, and more inclusive within countries.
Policy Recommendations
•Establishing comprehensive systemic oversight: to preserve gains from globalisation, stronger cross-border regulatory
cohesion and oversight of economic activity is essential, with a focus on a greater sharing of the costs of economic adjust-
ment across as well as within countries.
•Broadening the Global Economic Governance Agenda: the achievement of sustained economic growth entails a broader
strategy centred on growth-enhancing structural reforms supported by fiscal policy, as well as measures aimed at compen-
sating those side-lined by global economic integration.
•Reforming Bretton Woods Institutions and expanding G20 governance: sustaining better global economic performance
requires a strengthening of current multilateral financial institutions so as to improve the ownership and support of their
global membership. In this vein, the G20 needs to improve its legitimacy and representation.
The global financial crisis of 2007–09
1
will likely be seen as a
turning point in the history of the postwar globalisation
experiment. While the origins of the crisis are complex, multi-
faceted and continue to be debated, the financial crash and
subsequent economic fallout laid bare some of the more glar-
ing deficiencies of the international approach to globalisation.
This paper offers an overview of these deficiencies as well as
the limitations of the responses that have been made thus far,
and proposes a policy agenda for overcoming them.
The global crisis shattered confidence in light regulation
of finance and globalised capital flows, which had already
been weakened by a series of financial crises in emerging
markets from 1994 to 2002. It suddenly became clear that
financial deregulation and global financial integration did
not reduce the risk of widespread financial insolvency, but
amplified it. And as technical insolvency spread from the
epicentre (US financial institutions) to European banking sys-
tems, the crisis forced European policy makers to confront
the inadequate institutional design of the Eurozone com-
mon currency system.
As the contagion risks became much clearer, so too did
the costs of ignoring rising income inequality within coun-
tries. Beyond fostering social unrest and undermining the
existing narrative of the positive relationship between glob-
alisation and widespread prosperity, the consequences for
economic growth and social mobility of skewed income
gains and wage stagnation grew louder.
As the crisis brought these deficiencies to the forefront of
international policy debates, nowhere was their impact more
palpable than in Europe. In the Eurozone, the costs of bud-
get consolidation in the southern periphery forced officials
in Brussels and in the stronger northern countries to con-
front the question of how member states would, and should
share the burden. For the weaker economies, the common
currency increasingly resembled the deflationary straight-
jacket that defined and prolonged the Great Depression for
those that adhered to the gold standard in the 1930s
(Eichengreen, 1992). In the United Kingdom –one of the
most heavily financialised and financially open economies in
the world –society became polarised between those who
©2017 University of Durham and John Wiley & Sons, Ltd. Global Policy (2017) 8:Suppl.4 doi: 10.1111/1758-5899.12430
Global Policy Volume 8 . Supplement 4 . June 2017
30
Research Article
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