The height of sentimentality about the financial crisis may have passed with the morbid first anniversary of the collapse of Lehman Brothers, but that does not mean we should stop reflecting on the worst financial calamity of our time.
Of course, the world will never be the same. Yes, new economic powers have emerged and will reshape the global economy. We can say we all “learnt our lesson”. We have heard it all before. But what have we really learnt?
As the saga of platitudes on the financial crisis comes to an end, hard questions now lie on the hands of world leaders. And the number of hands has expanded, with the Group of 20 leading nations set to replace the G7 and G8 as the hub of global economic co-operation. Economic giants, such as China, India and Brazil, will now have a voice in shaping world finance. This, of course, illustrates that decentralisation of economic power in the new world order is an unstoppable development, which may prove to be a positive one if the newcomers behave as responsible stakeholders.
But will all this summitry really make a difference? With the benefit of hindsight we can see the flaws in the financial system that allowed the collapse of Lehman Brothers to bring the global economy to its knees. But will we be able to say we wised up and put in place a better financial system?
Unlikely. So far, all we have really done is change the decision-making body, while the causes and symptoms of the financial crisis remain unchecked. Small and medium-sized banks continue to file for bankruptcy at a worrying pace. We still have not curbed the noxious behaviour of big banks: their social and political importance was enhanced more than scrutinised by the financial fallout after the Lehman disaster. “No more Lehmans” was the motto, cried both by banks and the public. The toxic combination of bank subsidies and bankers’ bonuses have socialised losses and privatised gains.
Society (and governments) learnt that we simply cannot afford another bank to collapse. This gave City boys leverage to claim that they really are “Masters of the Universe” and need to keep doing what they have always been doing – making high-risk money – for the “good” of society, even if this means the taxpayer needs to foot the bill.
To make matters worse, in this era of the G20 and globalisation, we still do not have a coherent global response to the crisis. European Union co-ordination has been unacceptably poor, especially for eurozone countries. For example, every member state decided on its own protectionist agenda to nationalise banks or subsidise industries. Europe remains split over bonus regulation, with only France and Germany pushing for tougher pay restrictions in the banking sector.
We are told that the worst is over. We will all be flush with cash again soon. But in the meantime, do not worry about employment statistics – they are bound to take a beating for a while yet. As for international security and our defence commitments, our boys in Afghanistan will do well on a reduced budget. Forget about climate change. We cannot afford green economies at the moment; the health of the planet needs to wait.
We will have to wait and see whether last Friday’s glamorous photo opportunity of the newly empowered G20 will lead to any concrete action to save the world’s economy.
But unless consumer confidence, investments and international trade pick up on a global scale, it will take months, perhaps years, to sort out the current economic predicament. We are more distant today from a fair and functioning market system than we have been for a long time. This is fast becoming the legacy of the collapse of Lehman Brothers. What did we really learn again?
The writer is vice-president of Italy’s senate and a council member of the European Council on Foreign Relations.
This piece first appeared in the Financial Times.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.