Call for a “Greenpeace of Finance”

Last week, French Green MEP Pascal Canfin launched a call for the establishment of a “Greenpeace of finance” to counter the powerful lobby groups which can dominate EU decision-making over reform of the financial sector. Strong civil society involvement is essential for ensuring that there is a democratic debate over EU policy in this area, he argued. “No NGO in Europe is capable of producing specific expertise like Greenpeace can on nuclear or Amnesty International can on human rights. We need a Greenpeace of finance,” Canfin said.

According to Canfin, “Historically the banking sector isn't a traditional action area for NGOs. The newness of the topic means that they do not spend very much money developing expertise in the area”. He called also for former bankers and traders to become involved.

A consultation was held between MEPs and civil society organisations (CSOs) on this issue under the title “Make Finance Work”, with the aim of exchanging experiences and building joint capacities to influence financial regulation, and of planning joint campaign activities for sustainable finance. Parliament offered to provide funding for the establishment of a “Finance-Watch” umbrella network for an initial period of six months, after which the CSOs would be expected to continue its running on their own. It was stressed by participants that funds would be needed to finance detailed academic studies which could serve as relevant input for drafting legislation, as this is a proven way to affect policy change.

However, despite official recognition by the EU of the importance of an “open, transparent and regular dialogue” with civil society, CSOs often claim that the EU institutions marginalise them and refuse to engage with their demands for greater openness. One notable example is the EU’s bio-fuels policy: last week five environmental groups wrote an open letter to the European Commission demanding that it live up to the Lisbon Treaty’s requirements for transparency over this issue. “We are worried that a pattern of scientific obfuscation and intransparent working is emerging within the Commission regarding the impact of the European Union’s bio-fuel policies,” reads the letter.

Fiscal holes and black holes threaten MDGs

A just published report for Oxfam by Development Finance International, The Impact of the Global Financial Crisis on the Budgets of Low-Income Countries, examines the impact of the global financial crisis on the budgets of low-income countries, especially their spending to reach the Millennium Development Goals (MDG). The crisis created a huge budget revenue hole of $65bn, of which aid has filled only one-third. As a result, after some fiscal stimulus to combat the crisis in 2009, most Low income Countries (LIC) (including those with IMF programs) are cutting MDG spending, especially on education and social protection. They have also had to borrow expensive domestic loans, and increase anti-poor sales taxes. Almost all LICs could absorb much more aid without negative economic consequences (whereas they have much less space to borrow or to raise taxes).

The report therefore urges the international community to make strong new aid commitments at the Millennium Summit in September 2010, funded by financial transaction taxes or other innovative financing:

* the IMF to encourage LICs to spend more on MDG goals and on combating climate change and to report regularly on such spending;
* and LIC governments to increase spending on social protection and education; taxation of income; property and foreign investors; and efforts to fight tax avoidance.

The authors of the report, Katerina Kyrili and Matthew Martin from Development Finance International warn: “If these changes are not made, the fiscal hole caused by the crisis risks becoming a ‘black hole’ into which the MDGs, and the lives and education of many of the world’s poorest citizens, will disappear.“

ActionAid welcomes Sarkozy’s stance on financial reform

ActionAid welcomed French President Nicolas Sarkozy’s announcement that France plans to use its presidency of the G20 next year to create a new international monetary system. In a new report, Fruits of the Crisis: Leveraging the Financial & Economic Crisis of 2008-2009 to Secure New Resources for Development and Reform the Global Reserve System, ActionAid and Third World Network note that the IMF’s Special Drawing Rights (SDRs) could be used as an innovative financing tool to meet developing countries’ urgent requirements for development, climate adaptation, and counter the impacts of the global financial crisis.

Creative use of SDRs could complement measures such as the proposed financial transaction tax and levies on bunker fuels and aviation to raise the sums urgently needed. With international co-operation, SDRs would mobilise more resources than existing proposals for innovative financing. The report includes recommendations to build on the G20’s innovative use of SDRs to address the global crisis. It calls for mobilising the resources represented by the idle SDRs allocated to rich governments, and for easing the conversion of and use of SDR proceeds by developing countries.

In line with Sarkozy's speech to business leaders at the World Economic Forum in Davos, the report concludes that SDRs could also be a key part of reform measures that would address the causes of the global financial and economic crisis. In a climate of financial reform, with increasing volatility in the US dollar’s value and level of trust, SDRs may be the best option as an international reserve currency.

The new report analyses proposals for reform to the global monetary system from the United Nations and a range of economists and has been authored by Soren Ambrose of ActionAid and Bhumika Muchhala of Third World Network and is available >>> here.

Obama bank reforms: Major step in the right direction, trade unions say

US President Barack Obama’s announcement of plans to restructure banks as a key component of comprehensive financial regulatory reform is a major step in the right direction, which other governments must rapidly commit to match through similar laws, according to the international trade union movement. Linking the banking sector’s “binge of irresponsibility” to the deepening unemployment crisis, Obama has proposed a series of urgently-needed reforms, including an end to the practice of banks using depositors’ money to engage in the kind of high-risk speculative operations, such as hedge funds and private equity, which helped plunge the world into recession.

“While tens of millions of people are losing their jobs, the very same bankers and financiers who poisoned the global economy with their greed and arrogance are once again playing their dangerous game of financial roulette. They show no interest in helping solve the crisis, only in lining their own pockets with even bigger bonuses than before. This has to stop, and other governments must also move to take them on quickly and with the same determination as President Obama is showing,” said ITUC General Secretary Guy Ryder. News of multi-billion dollar bonuses, even in banks which had to be rescued by taxpayers, is a particularly ugly feature of the financial economy and has caused widespread outrage. On top of this, the “leveraged buyout”, where corporate takeovers are financed through massive debt, and employees often lose their jobs as a result, remains a feature of the world economy.

The US proposals are aimed at tackling one of the key causes of the world recession, and need to be implemented quickly and as a central pillar of overall reform, including action on bonuses and measures to limit purely speculative practices across the finance sector. “We need a clear and globally coherent regulatory framework to make sure that banking practices serve the real economy. A financial transactions tax to reduce speculation and provide funds to help pay the costs of the crisis and generate sustainable and decent jobs and development must also be part of the package,” said John Evans, general secretary of the Trade Union Advisory Committee to the OECD.

Three innovative proposals for G20 to help the poor

G20 finance ministers meeting in London this weekend should provide a $280 billion bailout for millions of poor people struggling to survive the economic crisis, Oxfam is proposing. A currency transaction tax is one of three measures that could raise much needed funds for developing countries without putting any extra burden on ordinary taxpayers. The proposals are set out in a new Oxfam briefing paper, Money for Nothing: Three ways the G20 could deliver up to $280 billion for poor countries. Reforming tax havens alone could release $160bn, reallocating an already agreed IMF bailout could free up another $89bn, and introducing a currency transaction tax could raise at least a further $30bn – each a significant sum to help poor people suffering in the crisis.

The money is desperately needed to prevent the crisis derailing efforts to reduce poverty as developing countries suffer job losses because of falling trade and capital flows. According World Bank and UN estimates, between 50-100 million more people will be trapped in poverty this year, forced to survive on less than $1.25 per day. Max Lawson, Oxfam senior policy adviser, said: “The beauty of these proposals is that they allow the G20 to bailout poor people without asking ordinary taxpayers at home to put their hands in their pockets. Rich countries that spent $18 trillion bailing out banks should not be allowed to plead tight budgets as an excuse for failing to help poor people – especially when there are alternative sources of funding available that would cost them little or nothing.”

The G20 in April promised to provide $240bn to help developing countries deal with the financial crisis – including $50bn for the poorest. But the World Bank estimates that developing countries will need up to $635bn in 2009 just to stand still. Much more is needed to reduce poverty, increase the number of children who attend school and tackle health problems such as HIV/AIDS and malaria.

How the three proposals would work:

* Implement a Currency Transaction Tax (CTT) of at least 0.005% on international currency transactions. It is estimated that such a tax could generate a minimum of $30bn per year if applied to the four major international reserve currencies (US Dollar, Yen, Euro and British Pound). If more currencies were included, this figure could increase as high as $50bn. A slightly higher rate could also provide more resources for government spending in rich countries facing cuts in services.

* Transfer half of rich countries’ new Special Drawing Rights allocations. Agree that at a minimum all the G8 and other major donor countries will transfer half of their allotted new allocations of IMF Special Drawing Rights (SDRs) to Low Income Countries. SDRs are a form of IMF quasi currency distributed to member countries. The April G20 agreed to create $285 billion worth of SDRs, and rich nations will receive $177 billion of this amount. Oxfam is calling for half of this, $89 billion, to be transferred to the poorest countries.

* Deal with tax havens. Put in place a multilateral agreement for the automatic exchange of full tax information and require country-by-country reporting of subsidiaries, sales and profits by multinational corporations, to help developing countries recoup lost tax revenue. This could result in a further US$160bn for poor countries, and at the same time would enable rich countries to recover their lost tax revenues. The current OECD initiative on tax havens, supported by the G20, relies on bilateral agreements between countries. To date no developing country has signed a bilateral agreement with a tax haven.

UN takes the ball on global economic policy

The UN agreement on the financial crisis takes important steps toward a global consensus on response to the crisis, according to CIDSE, an international alliance of 16 Catholic development agencies working together for global justice. Member nations have already agreed the text of a final declaration of the conference, which ends today in New York. The document includes the recognition that the UN should have a role in ensuring in ensuring that the global economic and financial system should work for developing countries.

“Global economic policy should be like the World Cup, with every nation playing – not a tournament for rich countries and their invited guests. With this agreement, the UN took the ball,” said René Grotenhuis, President of CIDSE and Director of Dutch organization Cordaid. “The US ought to be particularly commended for supporting economic justice – anyone at the Bush or Bill Clinton State Department would have been fired for approving this. Agreement for countries to impose capital controls is a total reversal of Clinton and Bush-era policies. And US support for World Bank and IMF hiring according to geographic and gender diversity moves them part of the way from G8-dominated clubs towards accountability to the world,” said Aldo Caliari, Director of the Rethinking Bretton Woods project at Center of Concern, the US member of CIDSE.

Progress includes:
* Trade: Developing countries earn half their GDP from exports, and trade is the main way the financial crisis is hitting them. The document recognizes many countries will need to change trade and investment rules or impose capital account restrictions, to implement crisis recovery measures.
* Debt: Developing countries face more than $3 trillion in debt maturing this year. The agreement includes temporary standstills on debt payments for countries in crisis, and agreement to go beyond existing ad hoc responses to a structured mechanism for sovereign debt settlements.
* Stimulus: The agreement calls on countries with stimulus spending not to impose rules that hurt third countries.
* Continuing mandate: While some countries opposed follow-up to the conference, the UN will have a continuing working group to implement these measures and an expert group to provide “independent technical expertise and analysis” on the subject of the conference.

“This is slow progress for more than 50 million people are expected to lose their jobs, and 100 million newly hungry in the world. But the UN is asserting influence on the global economy, and that’s good news for the majority of people who aren’t represented at the G8 or the World Bank and IMF they control,” said René Grotenhuis.

Voices on the UN financial summit in New York

* Head of South Centre: Most collateral damage in developing world
The United Nations should be the place that “educates the innocent and the victims” on how to deal with the world economic and financial crisis, Martin Khor, Executive Director of South Centre, said at a press conference in the run-up to the UN conference on the impact of the global crisis on developing countries in New York. He said that, having played no role in causing the crisis, the developing countries had suffered the most “collateral damage”, with losses averaging 6% of gross national income as their economic growth was expected to fall from 8.3% in 2007 to 1.6% in 2009.
>>> Full text

* ITUC: Global crisis needs global coordination
As the United Nations kicks off a major three-day Conference in New York, the International Trade Union Confederation (ITUC) is drawing the attention of world leaders to the severe human costs of the deepening slowdown in the global economy. This is most evident in the jobs crisis, with increasing income inequality, rapid increases in unemployment, and growing hunger and poverty in developing countries. Women are bearing a disproportionate share of the hardships brought on by the global crisis.
>>> Full text

* CIDSE: Global crisis requires global reform
According to CIDSE, an international alliance of Catholic development agencies working together for global justice, the worlds’ poor risk being let down once more as no leaders from developed countries are expected to attend. Their constructive engagement in inclusive fora like the UN is needed for structural changes like a Global Economic Council, to address economic issues the way the Security Council addresses security-related ones, and in keeping promises like the development finance agreements made in Doha.
>>> Full text

Civil Society supports UN-led Summit on finances

As one of the lead elements proposed for recommendation to the Financing for Development Review Conference, the Civil Society Forum supports an international summit on financial and economic architecture and global economic governance structures, in 2009. The Forum position challenges the proposal of some governments that the Bretton Woods Institutions organize an event, as well as moves to concentrate decision-making in the G-20 group of governments. Speaking to the plenary, Rana Al Sairafi, a civil society delegate from Bahrain, said “instead of focusing on ad hoc mechanisms like the G20, such a conference should be under the umbrella of the United Nations with the inclusive principles that govern the Financing for Development process, including the active participation of civil society organizations.” In preparation for the event, the UN should be asked to prepare a comprehensive review of the existing global financial architecture.

There are currently four alternate proposals (para.58) regarding the conference in negotiations for the Review Conference. The Forum recommendation supports the UN-led option. Addressing the Forum regarding the locus and purpose of economic governance, Jens Martens, Global Policy Forum (Germany) noted “The G20 failed to really address the root causes of the crisis. Instead, they primarily intend to stabilize the current financial system - a system that has been characterized for the last 20 years as “casino capitalism”. “We don’t need better rules for the casino,” Martens concludes. “The casino has to be closed down!”

Forum delegates spent Wednesday in sessions focusing on the six agenda items of the Review Conference, followed by intense workshops and caucuses on specific issues, including: women setting the agenda, addressing climate change, achieving the health MDGs, the Currency Transaction Tax, among others. Women, trade unions, and other sector-specific caucuses have met as well. Further recommendations on finance reform include support for the upgrading of the UN Committee of Experts on tax to become an inter-governmental body, moves to make international financial flows fully transparent, ending illicit transfers of resources, and ensuring rapid fulfillment of aid commitments and enhancement of quality and accountability of aid.

UN Task Force on reform of global finance stands ready

On the eve of the World Financial Summit in Washington, General Assembly President Miguel D’Escoto announced the full composition of a high-level task force he is setting up to examine possible reform of the global financial system, including the International Monetary Fund (IMF) and the World Bank. Joseph Stiglitz (see photo), who won the Nobel Prize for Economics in 2001 and is a former chief economist at the World Bank, will chair the Commission of Experts on Reforms of the International Monetary and Financial System, which will suggest steps that Member States can take to secure a more stable global economic order. The commission’s other members are:

* Jomo Kwame Sundaram, the current Assistant Secretary-General for Economic Development and the UN Department of Economic and Social Affairs (DESA);
* José Antonio Ocampo of Colombia, who is a former Under-Secretary-General for Economic and Social Affairs;
* Zeti Akhtar Aziz, the Governor and Chairman of Malaysia’s Central Bank;
* Jean-Paul Fitoussi, Professor of Economics at the Institute d’Etudes Politiques de Paris in France;
* Avinash Persaud of Barbados, who is Chairman of Intelligence Capital Limited;
* Yaga Venugopal Reddy, former governor of India’s Reserve Bank;
* Eisuke Sakakibara of Japan, who is currently Professor at Waseda University in Tokyo;
* Chukwuma Soludo, the Governor of Nigeria’s Central Bank;
* Yu Yongding of China, the Director of the Institute of World Economics and Politics.

When D’Escoto announced the formation of the panel last month, he noted that “there is growing recognition that the current turmoil in the financial system cannot be solved through piecemeal responses at the national and regional levels but requires a coordinated effort at the global level.”

G20 must put fight against poverty at the center

The G20 must avoid small-scale tinkering and instead take immediate, aggressive action to tackle poverty while laying out an ambitious vision for reforming the world economy at its Financial Crisis Summit. In a new report, If Not Now, When?, international relief and development agency Oxfam says that people living in poverty will be hit hard by the financial crisis unless urgent action is taken, adding that the poor should not have to pay for rich countries’ mistakes. The International Labor Organization estimates the number of workers living on less than one dollar a day may increase by 40 million and those living on less than two dollars a day could increase by more than 100 million.

According to Oxfam, there is a risk that recessions in rich countries will lead politicians to take the short-sighted approach of cutting aid. Given the tiny amounts of money involved compared to rich country economies, this would do little more than offer symbolic budget savings, but at huge human cost. Aid to all developing countries last year was $104bn. In comparison the US and EU mobilized nearly 30 times this – around $3trillion – in the last few months to help bail out their banks.

In "If Not Now, When?" Oxfam says that global leaders should immediately develop a new international regulatory institution with teeth, to prevent future financial crises and protect the interests of workers, consumers, and the environment. This includes taking on the secretive tax havens which undermine regulations and rob poor countries' of vital revenue that could be spent on schools and hospitals. It also calls for leaders to build a new representative global governance structure to tackle the economic, climate, food and energy crises. Reform must include far greater roles for developing countries as well as the poorest. Rich countries are going to have to concede some power on governing bodies like the G20 because they are desperate to get their hands on the huge financial reserves held by emerging markets.

Oxfam urges global leaders to see the opportunity to develop a new 21st century political and economic system that puts people and planet before profits. Oxfam calls on the G20 leaders to do three things:

1. Honor the OECD pledge not to cut development assistance, and increase aid instead by an additional $140bn necessary to meet the UN target of 0.7 percent of GNI immediately. In addition, urgently extend credit to emerging markets facing liquidity crises.
2. Rewrite global financial rules and regulations, including tackling tax havens and moving towards a more stable exchange rate system, in order to make the market work for all and not just for the few.
3. Build a new representative global governance system that can effectively tackle the economic, food, and energy crises.

Voices on the upcoming G20 summit IV: UBUNTU

The “network of the networks”, UBUNTU which is presently running the World Campaign for In-depth Reform of the System of International Institutions has published the following statement regarding the G20 summit in Washington DC:

While emphasising that, of course, all people have the right to meet whomever and wherever they choose, we the undersigned, in the tradition of the statements issued by the UBUNTU Forum, wish to declare the following:

1. Our deep concern about the serious impact the implosion of neo‐liberal capitalism will have on humanity, an implosion which will surely be the last – although it unfortunately is still going on – of an economic model that we have denounced many, many times as extremely unjust and damaging to society.

2. Our perplexity, because the main protagonists who have worked to impose this model over the last 25 years, the G7 and the Bretton Woods Institutions (the
IMF and the WB) are now taking on the role of saviours in this disaster, when they should rather be seen as the guilty parties to a large degree, and should consequently accept the responsibilities that pertain to them.

3. Our indignation regarding the meeting called for 14 November in Washington for, among others, the following reasons:
a) That precisely Washington, home of the Government and Organisations most responsible politically for what is now happening, is the one calling the meeting.
b) That invitations to the meeting have been issued in a totally arbitrary and discriminatory form. As if, for example, the poorest countries, those who have suffered most from this model and will probably suffer most from the consequences of the current debacle, had nothing to say about what to do now and in the future.
c) That it not only fails to take advantage of but even overshadows the Doha
Conference on Financing for Development to Review the Implementation of the Monterrey Consensus, scheduled for 29 November to 2 December, especially when this Consensus includes a section on systemic ‐ structural issues, which have been worked on for months in the United Nations’ most pluralistic and transparent framework, and which, appropriately reviewed and extended in the current context, could contribute to opening the way to a new world economic and financial model.
4. Our conviction that the time has come for an in‐depth Reform of the System of International Institutions, so long demanded by many world forums, to begin to lay the foundation for a world democratic governance which, among many other things, would prevent the world having to experience another situation like this one. In any case, the ongoing world regionalisation processes should be considered amongst the new principles upon which the system must be refounded.
5. Our urge that in the headquarters of the United Nations, in the context of the imminent Doha Conference, the process towards a Multiactor World
Conference on a New International Monetary and Financial System and its New
Democratic Institutions of Governance immediately begins, with the active participation of all the relevant actors of the present world situation, and thus and most fundamentally with the participation of civil society and of social movements.

Voices on the upcoming G20 summit III: NGOs

In a letter to the Financial Times Aldo Caliari, the director of the Rethinking Bretton Woods Project, Center of Concern, in Washington DC writes today:

Sir, Does it really come as a big surprise that the level of ambition for the November 15 summit of Group of 20 leaders is so low? ("Don't bank on Bretton Woods II, says IMF chief", 8 November) It should not.

We only need to look back at what came out of the last time leaders of rich countries talked about a "new global financial architecture", in the late 1990s. The response conveniently underscored changes to the domestic financial structures of developing countries, rather than to those of developed countries or the gaps and dysfunctions of global institutions. Unless a much more inclusive approach is followed, giving an institutional platform for the voice of all developing countries, it is unrealistic to expect better results this time.

Fortunately, such a platform is available. Only two weeks after the summit, leaders of the world will meet in Doha, Qatar, to review progress in implementation of the 2002 International Conference on Financing for Development. Reform of the international financial system is a key item on the agenda. Indeed, the current draft outcome document contains a breakthrough call for a major review of the "international financial and monetary architecture, and global governance structures". The basis for the review is the 2002 Monterrey consensus, whose pertinent chapter constitutes the first north-south multilateral consensual framework for reform of the international financial system.

The Doha review clearly provides a much better forum to launch a long-term discussion on reform, one that gives some voice to the poor and vulnerable and that garners the broadly based knowledge, ownership and political support that needs to be behind such reform.

Only something with such multilateral roots deserves to be called "Bretton Woods II", and G20 leaders meeting in Washington should use the opportunity to lend their support to it.

Voices on the upcoming G20 summit II: The OECD

OECD is preparing a two-pillar action plan for governments, as part of a global response to the world financial crisis, calling for tighter regulation and oversight of financial markets and improved national policies to promote economic growth. OECD Secretary General Angel Gurría said the action plan would cover a wide range of areas, from financial regulation, corporate governance and fiscal policy to competition, employment policy, insurance and pensions. “The causes and consequences of this crisis are rooted in a wide set of inter-related policy areas and can only be addressed through integrated responses,” he told participants at a briefing seminar organised by the European Policy Centre in Brussels.

The OECD action plan will be organised around two pillars, he said. “First, align regulations and incentives in the financial sector so that market operators act in a tighter oversight and risk management environment. Second, review and upgrade national policies and improve policy coordination at the international level to restore the conditions for economic growth.” One of the key lessons of the financial crisis has been the critical importance of efficiently functioning financial markets for the stability of the real economy. “That efficiency relies not just on competition but also on effective regulation and supervision,” Gurría said.

Looking beyond financial markets, however, he emphasised that governments must also play their part in sustaining economic activity. “Automatic fiscal stabilisers are already helping to cushion the downturn, especially in Europe. But more needs to be done,” he said. “While social safety nets are in place in OECD countries, there will be a need to step up re-training efforts for those who have become unemployed. There may also be more pressure to help those who are in danger of losing their homes.” Finally, Mr. Gurría emphasised the urgency of keeping policy attention focused on other major challenges. “The current economic crisis demands tough decisions now, but it must not distract our attention from the other grave structural challenges that we confront.” Governments must hold fast to their efforts to address poverty, inequality and climate change, he said. “It is crucial, in the middle of the storm, that we don’t lose our sense of direction… that we keep our commitments to scale-up development aid, to keep global trade and investments open, to develop cleaner energy to protect our environment.”

Voices on the upcoming G20 summit I: The economists

The world is at a dangerous point. Governments seem unprepared for the next round of difficulties that will arise as the recession grows and financial crises spread to emerging markets. Economically and financially, there is a clear sense that things are spiralling out of control again. The G20 meeting in Washington next weekend is an opportunity for leaders to show that they have the will to solve the global crisis. In an E-book from VoxEU.org - edited by Barry Eichengreen and Richard Baldwin - some of the world's leading economists provide essays from on what the G20 should do. The authors identify four priorities for action:

1. In the financial sector, apply triage to stop the bleeding; in the real sector, use fiscal stimuli: There is unanimity on this. Governments need to move fast - and coordinate their actions - in recapitalising banks, guaranteeing cross-border bank claims, restructuring non-performing assets, and extending financial support for crisis countries. Similarly, there is an urgent need for an immediate, substantial, internationally coordinated fiscal stimulus. Here China has shown leadership, and other countries should follow. Leaders from some countries may argue that they cannot - that their national circumstances are special. This cannot be accepted: commitments should be announced on 15 November.

2. Strengthen the ability of existing institutions to deal with the crisis in emerging markets: The most urgent task is to augment IMF resources immediately so that the institution has adequate firepower. There are a variety of ways to do this, but absolutely no dissent from the view that action must be taken now.

3. Start thinking outside the box about longer term reforms: Several contributors argue for new approaches to the regulation of large cross-border financial institutions: an International Bank Charter, a World Financial Organisation, an International Insolvency Mechanism for financial institutions, or even a single global regulator. None of these proposals can come to fruition on November 15th but it is essential to start discussing them now.

4. Do no harm: The contributors argue for caution in introducing new regulation: don't clamp down so hard on financial institutions and transactions that they stop providing intermediation services or innovating. And don't respond to deep recession with protectionist measures that beggar one's neighbours and destroy the world trading system. In their communiqué, the G20 leaders should promise to avoid such actions - and announce immediate steps to make this commitment credible.

EU position for Doha unsettled by G20 summit

According to observers in Brussels, the G20 summit on 15 November in Washington has thrown a wrench in the works to finalize a common European position for the UN conference on Financing for Development in Doha, Qatar at the end of the month. EU heads of state are meeting in Brussels today to discuss the EU’s positioning at the Washington summit on the future of the international financial architecture. This architecture has an essential impact on the financing for development issues on the agenda in Doha. But the development perspective is low on the radar screen for the G20 countries invited to the Washington summit. And a development perspective is nowhere to be found in the preparatory paper for today’s EU summit.

It is against this backdrop, the EU Council of Ministers is moving towards agreement on its position for Doha. On aid, the question of clear timetables for Member States to implement their commitments to provide 0.7% of GNI in ODA will be left to Development Ministers at the 11 November Council meeting, with certain countries using the current economic context as an excuse to renege on their promises. On innovative sources of finance, some Member States refuse to consider funds raised e.g. through the air ticket levy as additional to their 0.7% ODA commitment, preferring to use these as compensation for declining aid budgets.

The EU position places a strong emphasis on the responsibility of developing countries for mobilizing their own resources for development, giving less attention to ways in which the EU is undermining their ability to do so. Several Member States are opposed to civil society proposals on taxation, such as upgrading the UN Tax Committee to an intergovernmental body, which would give it a stronger mandate on issues like EU tax havens which allow multinational companies to pay lower taxes to developing countries. The EU is also resisting strengthening the FfD follow-up process within the UN, which would help to ensure implementation of agreements reached in Doha.

According to the CIDSE network of catholic aid agencies, the choice is now clear: The EU can seize the opportunity of revisions to the international financial architecture to change unfair global power structures and rules that inhibit developing countries’ ability to finance their own people’s development. Or, it can continue to proclaim grand rhetoric about the impact of the financial, food, and energy crises on the world’s poor, while disregarding the interests of the vulnerable in the scramble for profile at the table of the world’s most powerful. CIDSE will organize a side event at Doha launching a new policy paper on taxation and development.

El Escorial statement stresses ‘New Green Deal’

The civil society network BankTrack has released Bank to the Future: El Escorial Statement on Banks and the Financial Crisis today in Madrid. The statement was drafted at BankTrack's annual strategy meeting, held in El Escorial de San Lorenzo earlier this week. It contains BankTracks´ current position on what is needed to deal with the unfolding financial crisis of today so that it will lead to a sustainable, robust and just financial system in the future. The statement recognizes that the world financial system is at the brink of collapse. It characterizes the current crisis as not only an economic and financial crisis, but one of governance and sustainability.

The statement stresses the need for a ´New Green Deal´. Such a deal would not seek to stabilize the economic system as it is, but also aim to transform it into one that helps solve the pressing social and environmental problems the world is facing. The fiscal spending that is necessary to stimulate crisis-affected economies entering recession should be directed at achieving social justice, the promotion of sustainable production and consumption systems, and the transition of the world’s economies onto a low carbon path.

The statement outlines a number of steps to deal with the crisis in each of these dimensions, including:

• eliminating the influence of banks in the political process
• ensuring democratic participation in the design of a new global financial order
• putting a "sustainable twist" on international banking rules (such as including environmental and social risks into capital adequacy requirements)
• ensuring complete bank transparency regarding risk assessment processes and transactions
• eliminating the shadow banking sector by introducing regulations and reporting requirements
• prohibiting speculation in the derivatives markets, particularly those related to food and energy
• reducing incentives for excessive risk taking, such as eliminating short-term, volume-driven bonuses.

The Statement concludes, "We face a time of dramatic change that presents unique opportunities. Now that the once-dominant forces of market fundamentalism have been discredited, a new, equitable, and sustainable future can be built on the rubble of past excesses."

Financial crisis and the South: UNCTAD officials say UN should be involved

The United Nations and a wider variety of countries should play a significant role as the international financial system is reshaped to cope with spreading turmoil and a looming worldwide recession, UNCTAD's Secretary-General and the director of its globalization division said on 16 October, after the organization's monthly consultation with the president of its governing body, the Trade and Development Board (TDB). UNCTAD officials warned that the likely impacts of the crisis on the world's poor nations are not receiving sufficient attention as global economic giants deal day to day with the tumult.

UNCTAD Secretary-General Supachai Panitchpakdi expressed concern for what he called "innocent bystanders." "The impact on developing countries will be much deeper than was anticipated," he said. "'Real' sectors" of their economies "are beginning to suffer, and this is only the beginning." Volatile exchange-rate movements affecting some of these countries "certainly will not help," the Secretary-General said. "Trade will suffer, and the commodities boom that has helped developing countries for a number of years now is ending."

* Capital-flow paradox intensified

Mr. Supachai said four issues need to be addressed:

* Global liquidity is being "sucked away" as banks in industrialized nations are bolstered by huge government infusions of funds, leaving the question of whether any cash will be left for credit and development aid needed for efforts such as achieving the Millennium Development Goals, enhancing productive capacities in poor countries, and coping with such problems there as climate change.

* The fate of smaller private banks, especially in developing countries, has to be considered; they are not among the large institutions now "effectively being nationalized" around the world, and they may not be able to compete for limited funds or receive sufficient help in coping with the current turmoil.

* More has to be done to keep capital from fleeing from developing countries. The so-called "capital-flow paradox" has intensified, meaning profits earned in poor nations often end up overseas rather than helping these countries to further their development.

* And liberalized global markets need to be regulated so that they continue to energize the world economy but have less volatility and risk, especially for small nations that are at the mercy of such factors as large investment and currency shifts.

Refashioning the global financial system "must be a global effort," should include the participation of all countries, and should include significant UN participation, Mr. Supachai concluded.

* Speculation: Major threat to small countries

Heiner Flassbeck, Director of UNCTAD's Division on Globalization and Development Strategies, which produces the organization's flagship Trade and Development Report, summarized the current turmoil as "a global de-leveraging, a global going out of risky positions. That is all right on its own - in fact we have said for several years that this was going to happen - but it can go too fast. It must be slowed down by government intervention."

Flassbeck said currency fluctuations, driven to a great degree by speculation, are proving now to be a major threat to small countries. Widespread speculation known as the "carry trade" for some time has driven currency values in the wrong direction from standard economic patterns, he said. As these now unwind, "there is overdone flight out of currencies perceived to be less secure." "The next row of dominoes to fall in this crisis could be from speculation in currencies," he warned, "and this is not being talked about enough. Countries with appreciating currencies must step in and help stop the process on behalf of countries with depreciating currencies. We have to avoid more cases of what is happening in Iceland."

Flassbeck also warned of a "huge slowdown in trade due to the global recession that is looming”. “The current malaise is that we have built a huge casino next to the real economy, and given too many people the means to play there, and now that casino has collapsed. We need to realize, to learn the lesson, that this kind of casino is not productive, is not helpful. We must go back to balanced and real economic relations and to balanced relations between currencies."

Europe’s banking crisis: A call for action

In an open letter published today on VoxEU.org, a group of leading scholars call on Europe's leaders to unite immediately to address the global financial crisis head on before it spirals out of control. While actions by US policy-makers are welcome, a decisive and coordinated response from Europe's nations is required, or they may find themselves fighting over how best to salvage the aftermath. The letter was written by Alberto Alesina, Richard Baldwin, Tito Boeri, Willem Buiter, Francesco Giavazzi, Daniel Gros, Stefano Micossi, Guido Tabellini, Charles Wyplosz and Klaus Zimmermann. The letter says:

Europe is in the midst of a once-in-a-lifetime crisis. Every European knows what happened when financial markets seized up in the dark years of the 1930s. It is not an exaggeration to say that it could happen again if governments fail to act. We are not predicting that it will happen, but it is critical to know that this is what is at stake.
Trust among financial institutions is disappearing and there are risks that fear will spread more widely. Turmoil in financial markets must be stopped before it causes major damage to the real economy. The savings of hundreds of millions of Europeans are directly threatened. If the turmoil produces credit market paralysis, jobs and businesses will be destroyed on a massive scale. A further weakening of the real economy would put more loans at risk and create a vicious cycle of falling asset prices, deteriorating ability to repay loans, and diminishing credit flows.
Actions by US policymakers are welcome, but they are not sufficient. Decisive policy action is required in Europe as well.

* Policy spillovers: European-level actions to supplement and coordinate national actions
The US authorities learned last week that saving one bank at a time won't work; a systemic crisis demands a systemic response.
In Europe, saving one bank at a time means either a rescue effort mounted by one nation, despite important spillovers to neighbouring countries, or last-minute improvised coordination and agreement about fiscal burden sharing. The national responses and ad-hoc cooperative efforts to date have been useful. Yet interdependence among European banks is too deep and too wide-spread for national responses or case-by-case coordination to be enough. Each national policy intervention and each cooperative intervention by a small number of countries can have unpredictable implications for other European nations. It is critical that national authorities sit together and coordinate their responses, developing Europe-wide solutions where appropriate.
Now is the time to act while the situation still appears manageable. Last week's events in the US demonstrate that financial crises do not evolve smoothly and predictably. One unexpected event can trigger a cascade of failures and panics that become increasingly difficult to control.

* Solutions
Many solutions will be part of the answer. In the US, dealing with the immediate crisis requires restoring liquidity to money and credit markets, and creating the conditions for the resumption of the securitisation of prime mortgages and other illiquid but sufficiently homogeneous and transparent assets. In Europe, the key problem is high leverage among the internationally active large banks. Hence the EU contribution must be centred on a recapitalisation of the banking sector, through the injection of public equity or through mandatory debt-to-equity conversions. This has to be done at the EU level (e.g. through the EIB). The current approach of rescuing one institution after another with national funds will lead to a Balkanisation of the European banking sector. Agreeing a harmonised level for deposit insurance would also be important.
To prevent future crises of this nature, regulation of the European financial markets and institutions at the European level will also be required.
The problem is not a lack of understanding of how to stop financial crises. The problem is a lack of political will.
Unless European leaders immediately unite to address this crisis before it spirals out of control, they may find themselves fighting over how best to salvage the aftermath.

The model of globalization stands discredited: Time for change has come

Against the background of the ongoing global financial crisis the International Trade Union Confederation (ITUC) has published the following statement:

The political wrangling in the US Congress over a $700 billion bail-out plan may well reflect the disgust and anger of working people everywhere at their taxes being used to bail out those whose greed, irresponsibility and abuses have brought the world’s financial markets to the brink of collapse and raised the spectre of global recession.

But it has also deepened a crisis which threatens the jobs, homes and futures of billions of human beings – those who never drew profit from the years of excess, whose work has been underpaid and degraded and who bear no responsibility for what is now happening.

Having looked into the abyss they have helped create, policy-makers are waking up to the need for regulation of the world economy and for governments to finally take up the duties they have long abdicated - to set rules for markets, to protect and provide for their citizens, and to intervene to ensure socially equitable and sustainable outcomes.

This awakening comes late, but if it goes deeper than a passing concern to extinguish the fires raging in the financial markets which are threatening to engulf the real economy, then it is to be welcomed. Because only by breaking the habit of hanging on the coat tails of financial interests, abandoning their complicity in the generation of massive and growing inequality, and ending their underwriting of corporate greed and excess, can governments reconnect with the realities of the lives of working families, and begin to provide the leadership and the answers they demand.

The immediate task is to respond decisively and effectively to the financial crisis with assistance for its victims but without reward for its authors. But the scale of the challenge ahead goes far beyond even this massive task.

When the ITUC was founded in 2006, it highlighted the need for fundamental change in globalization and committed itself to bring it about.

The time for that change has come.

Resolving the financial crisis must go hand in hand with concerted international action to stimulate jobs and growth so that the imminent danger of world recession is averted, and economies are launched on paths of just and sustainable development.

The essential task of regulating financial markets, so as to shut down the option of a return to business as usual and a repetition of today’s debacle, must be one component of a wider agenda to reshape the management of the global economy.

The imbalances which have seen real wages fall or stagnate, at the same time as capital has reaped record profits, need to be redressed. Organising and bargaining rights, recognized internationally, must be enforced universally so workers can have real influence over their lives and their futures. The trade agenda, mired in the impasse of the Doha Round, can only move forward once it is based on the imperatives of decent work, development, rights and equity. The international community faces too the unavoidable obligation to agree quickly an effective plan to combat climate change, where failure would have consequences far beyond anything that financial meltdown might bring.

The bottom line is that the model of globalization which has reigned supreme for over two decades stands discredited. But in its failure are the seeds of opportunity for fundamental change.

The ITUC calls on all governments to seize that opportunity and to act with courage, vision and principle to reinstate commitment to social justice, decent work and sustainability at the heart of policy making and as the central objectives and rationale of economic activity.