Experimental feature

Listen to this article

00:00
00:00
Experimental feature
or

The world may be coming together on what needs to be done to pull the economy out of crisis. There is much common ground, if not a consensus, in many areas. This is not a sufficient condition for eventual recovery. But it is a first and necessary one.

Take financial regulation. The de Larosière report, the UK’s Turner review and early drafts of the G20 communiqué suggest much the same. In the future, the financial sector will be safer and duller. Banks will probably be smaller, regulation tougher and required capital higher. Lower profitability will take care of the bonus issue by itself. Whether such changes would be “good” or “bad” is a separate question. The important point is that international agreement is relatively uniform. As a result, no country’s banking system will enjoy advantages over another.

The same is true of monetary policy. The world’s major central banks have all cut interest rates to zero, or close. Many are now engaged in quantitative easing. This is risky if done alone as it can weaken the currency and give rise to criticism of “beggar-thy-neighbour” devaluations. But if everyone does it, the world can gain from the extra monetary boost.

Finally, there is fiscal policy. Countries are opening their wallets. Even Germany’s stimulus is only slightly smaller than the US’s as a percentage of output. Europe’s biggest tightwad is, in fact, France. And as even the International Monetary Fund now believes that countries should spend more – and the IMF’s director is a Frenchman – Paris may well come round too.

There is still a long haul ahead. There will be setbacks, and the world is headed for a stiff recession, at least. Whatever happens, the required deleveraging will take years. But there are also grounds for hope.

To e-mail the Lex team confidentially click here
OR
To post public comments click here

The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here

_________________________________________

Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of FT.com available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.

Subscribe now

If you have questions or comments, please e-mail help@ft.com or call:

US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248

Copyright The Financial Times Limited 2017. All rights reserved.
myFT

Follow the topics mentioned in this article

Comments have not been enabled for this article.