Jakob Vestergaard

The Governance Response to the Great Recession: The "Success" of the G20

Since its upgrading to heads of government level in late 2008, the G20 claims to be the steering committee for the world economy. It claims three specific big successes: stronger international financial regulation, including the Basel 3 Capital Accord; more effective macroeconomic coordination; and governance reforms of the Bretton Woods organizations. This paper challenges all three claims, but concentrates on the Basel 3 Accord. The modesty of the achievement leaves the world vulnerable to more multi-country financial crises, and testifies to the ineffectiveness of the G20 as presently constituted.

Chasing unicorns: The European single safe asset project:

For the past 20 years, Economic and Monetary Union (EMU) institutions have sought to engineer a single safe asset that would provide a credible store of value for capital market participants. Before 2008, the European Central Bank used shadow banking to create a single safe asset that we term shadow money, and in doing so also erased borders between Euro area government bond markets. Lacking appropriate ECB support, shadow euros could not withstand the pressures of the global financial crisis and brought down several periphery euro government bonds with them. Two new plans, the Capital Markets Union and the Sovereign Bond-Backed Securities, again turn to shadow banking, this time by using securitization to generate an entirely private safe asset or a public–private safe asset. Such plans cannot solve the enduring predicament of EMU’s bond markets architecture: that Member States have competed for investors (liquidity) since the introduction of the euro, betraying a deep hostility towards collective political solutions to the single safe asset problem. Technocratic-led, market-based initiatives need to persuade EMU states that there is little threat to their ability to issue debt in liquid markets. Without ECB interventions, market-based engineering of single safe assets runs the danger of repeatedly destabilizing national bond markets.

Disciplining the International Political Economy through Finance

Few would dispute that the past two or three decades have been, in many ways, the heyday of neo-liberalism and market capitalism. Looking back, it is pertinent to ask whether the rise of neo-liberalism over the past three decades made the global economy progressively more free of coercive power and governmental ‘interventions’. Has the economic order of the global economy become increasingly ‘spontaneous’?1 Has power, in terms of global economic governance, become more and more diffused and dispersed in this period? I shall strive to demonstrate in this chapter that the opposite is the case. Never have market economies seen intervention in so manifold ways — and in so standardizing and totalizing ways. Never before have predominant modes of global economic governance taken our notion of what a market economy is so far away from a neo-liberal ideal of ‘spontaneous order’.