Christine Lagarde pointed to “two broad currents” that would dominate the coming decades—increasing tensions in global interconnections; and increasing tensions in economic sustainability.
To address these emerging global tensions, she proposed:“A solution that builds on the past and is fit for the future: a strengthened framework for international cooperation. In short, a new multilateralism for the 21st century.”
The major elements of this reinvigorated multilateralism would include a renewed commitment to economic openness and to the “mutual benefits of trade and foreign investment; managing an increasingly complex international monetary system that has travelled “light years” since the original Bretton Woods system was launched in 1944; and building a global financial sector for the post-crisis era that “serves the productive economy rather than its own purposes.”
In addition, Lagarde said that the “new multilateralism” would demand a stronger sense of global responsibility if major issues such as climate change and inequality are to be tackled effectively. “The kind of 21st century cooperation that I am thinking of will not come easy,” she said. “It might even get harder as time passes, when the curtains fall on this crisis and when complacency sets in—even as the seeds of the next crisis perhaps are being planted.”
The immediate priority for growth, Lagarde said, is to get beyond the financial crisis, which began six years ago and is not yet over.
“This requires a sustained and coordinated effort to deal with problems that still linger—a legacy of high private and public debt, weak banking systems, and structural impediments to competitiveness and growth—which have left us with unacceptably high levels of unemployment.”
Lagarde also warned that financial integration can make crises more frequent and more damaging, and instant and wide communication can sow discord and confusion. “Because of this, the global economy can become even more prone to instability.”
She emphasised that strengthened international cooperation is key to managing these risks. Christine Lagarde said while closer financial integration had benefited the global economy, the 2008 financial crisis – triggered by the collapse of the US mortgage market – demonstrated countries could collapse like dominos if they did not work together. She pointed out that the $1 trillion stimulus package agreed in 2009 by the G20 in London had saved the world from global meltdown.
