MOSCOW. (RIA Novosti political commentator Andrei Fedyashin) - America is losing Bretton Woods, the global financial system formed designed at the UN Monetary and Financial Conference, commonly known as the Bretton Woods conference.
In July 1944, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel, in Bretton Woods, New Hampshire, to regulate the international monetary and financial order after the conclusion of WWII.
They signed agreements to set up the International Bank for Reconstruction and Development (IBRD), the General Agreement on Tariffs and Trade (GATT), and the International Monetary Fund (IMF).
At this point, nobody wants this system, which is why the top European leaders - French President and current EU Chairman Nicolas Sarkozy and President of the European Commission Jose Manuel Barroso - came to Camp David on October 18 to inform U.S. President George W. Bush of the demise of the Bretton Woods principles.
Sarkozy said Barroso and he "have a mandate from the 27 members of the European Union to come here and say first and foremost that this is a global crisis and, therefore, we must find a global solution." He said they needed to discuss a revision of the global financial system to "build together the capitalism of the future."
Barroso did not "beat about the bush." "We need a new global financial order," he said.
This European vision apparently conflicts with U.S. wishes.
To cushion the heavy blow, the two European officials allowed Bush to say that the global financial summit would be held in the U.S.
The summit, to be held after the November 4 presidential election in the U.S. but not later than December, will convene the leaders of the expanded G8, which also includes China, India and Brazil, and possibly Australia, South Korea and Saudi Arabia.
According to the U.S. Constitution, the new Chief Executive will assume office in January next year, and therefore Bush will still be president at the time of the summit.
Bush said he looked forward to hosting this meeting in the near future, but Sarkozy reminded him that, "insofar as the crisis began in New York, then the global solution to this crisis must be found in New York."
Some say the summit will be convened in the UN, which is not good for President Bush, because the UN complex on the Hudson River is officially a territory of the international community.
A Camp David meeting would have been utterly boring and unpleasant for the Americans, if not for Sarkozy's compatriot, Managing Director of the IMF Dominique Strauss-Kahn. Shortly before the Camp David meeting, newspapers reported that Strauss-Kahn, age 59, had an affair with Piroska Nagy, an employee of the IMF's African Department.
According to Times Online, the case began in January when Mario Blejer, a senior Argentine-born economist, alleged that Piroska Nagy, his wife, had been seduced by her boss at the latest Davos World Economic Forum.
When their transgression was uncovered, Strauss-Kahn allegedly helped transfer the beautiful Hungarian to a post in London at the European Bank for Reconstruction and Development (EBRD).
The financial official's romantic fling, which would have gone unnoticed in France, has made breaking news in the U.S.
Some say it was done on purpose. British newspapers write that Paris knew about the romantic troubles of Strauss-Kahn, who was living up to his old name as un grand séducteur, but regarded them as nothing out of the ordinary.
Some politicians say "the case had been leaked to the U.S. media to undermine the French effort," because Sarkozy has been working with Strauss-Kahn "to form a new Bretton Woods pact on financial regulation."
Sarkozy was reportedly furious because Paris had hoped no news would break until Strauss-Kahn was cleared later this month. Allies of Strauss-Kahn and some commentators dismissed the affair as another episode of hysteria by puritanical U.S. institutions.
However, even Strauss-Kahn's indiscretion cannot seriously influence the current situation. Europe has snatched the initiative of creating a new global financial order from the U.S. and President Bush. The U.S. will be a part of the new order, but it will not play first violin in the new financial orchestra. And Bush will leave the White House as a man who attended the burial of the Bretton Woods system.
Those who have undertaken the creation of a new financial system are facing a challenging task. The trouble is that nobody, not Sarkozy, nor the EU, China or Japan, knows what it should look like, as proposals and ideas refuse to merge into a clear picture.
Everyone knows that the old system is not good. It is rooted in the greediness of banks and their clients, which cannot be eradicated overnight, and in the mystical belief in a markets' talent for self-regulation.
Everyone also knows that to change this system the world must toughen control over global currency and finances and introduce state regulation of the economy, banks, exchanges, dealers, loans, etc.
Everyone knows that the global currency and financial organism cannot function properly without clearly defined rules, but nobody knows what the new model should be.
World leaders must clearly outline the new financial rules, or else they will fail just as the Bretton Woods principles did. The Bretton Woods rules have not stopped markets and financial institutions from misbehaving, even though the disease was diagnosed long before.
Many economists and experts say the system must be overhauled because crisis phenomena are growing exponentially, especially in the last 40 years.
Evidence of Bretton Woods' inadequacy is central banks' interventions to support national currencies, investment in gold instead of the U.S. dollar, regular convulsions and cramps on the stock exchanges, tough currency regulation (currency baskets), and regular loans taken from the IMF to cover budget deficits (the IMF's main task seems to be to lend money to make up for budget deficit), devaluation, revaluation, currency fevers, and trade wars.
It would be wrong to lay all of the blame at the door of that system's authors. It was designed in the last years of WWII, and the authors had to make do with what little was at their disposal at the time. At the end of WWII and for a long period after, the dollar and the U.S. were the two strongest entities in the world.
The world was comfortable with the dollar, but the situation has changed, though the U.S. tried to convince the world it could still be comfortable with the dollar. Americans were indeed comfortable with it, because Bretton Woods ensured the demand for the dollar and its stability.
But the comfy time is over, although the White House still insists that the liberal market system can be saved through reform. I don't think so.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
