BRETTON WOODS, N.H. — Sixty-seven years ago at the Mount Washington Resort here, the world’s financial leaders gathered to try to come up with a new order for the world economy to replace the one shattered by the Great Depression and World War II.
They succeeded. The agreement they reached set the stage for three decades of relative peace and prosperity.
April 12 (Bloomberg) - Carlo Cottarelli, director of the International Monetary Fund's fiscal department, discusses the outlook for the U.S. federal budget deficit. The U.S. is set to have the largest budget deficit of major developed economies this year and should narrow it now rather than face tough adjustments in the next two years, the IMF said. Cottarelli talks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
With the most recent financial crisis nearing its third birthday, this time there is less sense of promise about the economic future. In the coming days, world financial leaders will meet in Washington for meetings of the Group of 20 major economic powers, the International Monetary Fund and the World Bank (the latter two being creations of the 1944 Bretton Woods conference, as it happens).
There are unlikely to be any major breakthroughs this week in solving some of the nagging problems that put the world on course to the 2008 crisis, those involved with the talks said. The big imbalances that result from some countries saving too much and others saving too little will surely persist, the financial industry will continue to evade regulation by shifting operations to the countries with the most lax rules, and no solutions are at hand to contain the proclivity of financial markets to make abrupt and chaotic turns that can cause massive economic damage.
“The Bretton Woods conference was built on a foundation of optimism about the possibility of not just economic order, but political and, indeed, moral order,” said Harold James, a Princeton historian who spoke last weekend at a conference sponsored by the Institute for New Economic Thinking, where 300 economists and others gathered at Bretton Woods to debate the path forward. “There was also an urgency because it was in the last stages of a great war.
“Today,” said James, “we have neither the optimism, nor the urgency.”
Instead, the gathering in Washington over the coming days will likely include top officials hammering out a series of small-scale steps that just might, over time, reduce some risks — as was done at the meetings of top finance ministers in Paris in February and in Seoul in November. On the question of how to reduce global financial imbalances, the finance ministers will still be trying to agree on what measures ought to be used to assess whether a country is causing imbalances that put the global economy at risk, and not yet moving to pressure those countries whose spending and saving patterns are out of whack.
The gradualism results in part from the initial success of policymakers in containing the damage from the crisis. Part of the reason financial diplomats were able to reach a wide-ranging agreement in Bretton Woods in 1944 is that the scale of the disaster over the preceding 15 years had been so great that there was no question that fundamental reforms in global finance were needed — even at the cost of individual countries acceding to things not in their immediate interest.
But in the most recent crisis, emerging nations such as China barely experienced an economic dip at all, U.S. unemployment topped out at 10 percent instead of 25 percent in the Great Depression, and there has been no global conflict remotely comparable to World War II.
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