By Mia Saini, Forbes.com
The President of the European Central Bank, Jean-Claude Trichet, told Forbes that global governance is extremely necessary if we want to prevent another financial crisis. In his prepared printed and spoken remarks to the Council on Foreign Relations, Trichet emphasized that politicians, economists, and financiers must work across the Atlantic and collaborate on methods to create an international set of standards. It is his belief that through global governance, the resiliency of the global financial system can be assured, noting that ultimately it was governmentsâ€™ use of taxpayerâ€™s money, equivalent to around 25% of GDP on both sides of the Atlantic, that prevented another catastrophic great depression from occurring. With the backdrop of a U.S. financial regulation bill being stuck in the Senate, he argued three main points in support of creating internationally agreed rules.
1) First, the principle of subsidiary is essential. No rule should be imposed at a global level or supranational level that cannot be more or equally effectively set at the national or local level.
2) Second, itâ€™s not easy to create a complex set of rules in a complicated and often obscure field like finance, but that it is absolutely critical if we want to create stable financial markets.
3) Finally, global rules can be limiting from country-to-country, but that it is imperative now more than ever, because financial innovation has spiraled out of control in a negative way.
Additionally, he stressed that the financial emergencies created by investment banks and governments creates some contradictory issues.
â€œOn the one hand it has unleashed a tendency to reengage in financial nationalism if not mercantilism; on the other hand it had contributed to the recognition that a very high degree of interdependencies between economies called for a much higher level of cooperation.â€
In the end, Trichet believes itâ€™s the financial sectorâ€™s responsibility to respond to economic challenges.
â€œWhile financial liberalization, deregulation, and innovation all have the potential to make our economies more productive and more resilient, the financial sector must not forget that its purpose is to serve the real economy, not the other way around.â€
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