“I don’t think it’s necessary that they all have a similar response ... but the question is: does the response of country A create a problem for country B,” said Nicolas Veron, a research fellow at Bruegel, a Brussels, Belgium-based think tank.

And Paulson said “the key thing is that we continue to work closely together, we continue to communicate, we continue to coordinate.”

Those goals have been fairly easy to achieve in the realm of monetary policy, which largely involves interest rates and the supply of money in circulation — the traditional duties of central banks.

Multi-national agreement on the broader economic response demanded by the current crisis is harder because it’s more political, said Edwin M. Truman, a former official at the Federal Reserve and the Treasury Department.

Doing things such as buying up mortgage-backed securities, on the other hand, or guaranteeing loans to struggling financial institutions, involves taxpayer money and has political ramifications, said Truman, a senior fellow at the Peter G. Peterson Institute for International Economics.

Sebastian Mallaby, a senior fellow in international economics at the Council on Foreign Relations, said the globalization of finance means that this credit crisis is different from those of the past.

“A bank crash in the past had terrifically concentrated effects,” Mallaby said. When the oil industry in Texas collapsed some years ago, so did some Texas banks. But it didn’t spread further. “The bad thing about what’s going on now is that problems in the U.S. real estate sector can affect pensions in Norway or banks in Asia,” he said.

“But the good news is that because the pain is spread around, its less acute in any one place.”

Another reason combating panic is difficult in a global economy is that there is not necessarily a relation between the size of a bank and the size of a country, Mallaby said.

“There are some small countries with enormous banks, like Iceland. The banks are bigger than the country. We used to say “too big to fail.” This is more ‘too big to bail,’ “ he said.

And if forging unified strategies for the economic crisis is hard among developed countries, the challenge is all the greater when developing nations such as China, India Brazil, Argentina, and Mexico are added in. The 2008 world economic outlook released this week by the International Monetary Fund projected zero or even negative growth for advanced nations but 7 percent growth for developing ones.

Such differences cause nations to react differently.

But world leaders need to overcome parochial interests and realize that the crisis needs a coordinated assault, says the IMF’s Strauss-Kahn.

Already, he and others are talking about finding new ways for countries to cooperate economically. After the 1997 Asian financial crisis, finance and banking officials in the U.S., Asia and Europe created a group called the Financial Stability Forum to look for vulnerabilities in the international financial system and improve coordination in fixing them.

Its success is a matter of debate. But there are calls for finding similar new ways to coordinate efforts because of the current crisis.

1|2

SharePrintEmail

Write a Comment

Enter your comments - 1000 characters max

Type in image code

Submit

 Receive China Post promos Respond to this email