World Bank President Robert Zoellick said on Monday, Oct. 6, that the global financial crisis is getting "a wake-up call," indicating that the world's financial system needs a fundamental shakeup. For starters, he says, Western industrial powers should disband their clubby Group of Seven, and embrace a more flexible, broader-based group of nations reflecting today's more dispersed financial realities.
Zoellick explicitly aimed his punchy remarks at the next U.S. President as global markets succumbed to the same crisis of confidence that has pummeled the U.S. economy. He also may be aiming for a broader audience—finance ministers of the G7 countries are to meet Friday, Oct. 10, one day before the annual meeting of the World Bank and the International Monetary Fund in Washington.
U.S., European, and Asian markets suffered record losses Monday, and the MSCI Emerging Market Index fell by 11%—its largest daily drop in two decades. Developing nations may be at "a tipping point," Zoellick told a Washington audience; the U.S. has "a crisis in progress and an election within weeks," and any corrective action must be well-considered or "it will be a house of cards." Zoellick said: "We have seen the dark side of global connectedness. We need to navigate toward the light."
Possible Treasury Secretary
Some analysts regard Zoellick, an influential veteran of Republican Party economic posts, as a possible candidate for Secretary of the Treasury if John McCain wins the Nov. 4 Presidential election. Yet, while the speech was pointed, it seemed deliberately to evade ideology, and could have been delivered by a middle-of-the-road member of either major political party.
Indeed, the World Bank and the IMF, the pair of financial organizations established after World War II to help steer the global economy, appear to be to some degree coordinating discussion of the crisis. On Monday the IMF home page led with an article calling the current situation "the worst financial crisis to hit advanced economies since the 1930s."
"This crisis is the result of regulatory failure to guard against excessive risk-taking in the financial system, especially in the U.S. We must ensure it does not happen again," IMF Managing Director Dominique Strauss-Kahn says in the article.
A "Facebook for Diplomacy"
Zoellick said that the crisis is multilayered, involving diplomatic discord over trade, climate change, and energy and agricultural prices. Against those challenges, Zoellick urged "a new multilateral network," or what he called a "steering group" of some 14 or more countries that dominate the world population, economy, carbon emissions, capital markets, and foreign assistance. He said that in addition to the G7 countries, candidates for membership might include Brazil, China, India, Mexico, Russia, Saudi Arabia, and South Africa. The G7 countries are Britain, Canada, France, Germany, Italy, Japan, and the U.S.
He said the number of group members should not be fixed, and that they should meet regularly in person and by video conference. He called it "a Facebook for multilateral economic diplomacy."
"We need this mechanism so that countries are not left to fail, with all the human, economic, and political consequences this entails for both them and their neighbors," Zoellick said.