The resounding message coming out of the world’s economic leaders at the Bretton Woods conference today is that we need action.
And that in order for action, we need a strong leader. The fact that one does not exist right now was clearly on the speakers’ minds as they spoke today.
Jean-Claude Trichet said that swift decisive action is needed in Europe.
Speaking at the Bretton Woods Conference in Washington DC on Friday (which we attended), the ECB President said that the world faces a sovereign crisis that is centered in Europe but has spread to larger economies. The rapidly rising risk of contagion threatens financial stability. In order to prevent contagion, Trichet says, decisive action is needed soon.
Our take: It sounds like the consensus is that we need a leader to come forward to propose and implement a solution to the crisis. The U.S., because historically it has been the global leader, has an opportunity to play that role. Unfortunately, Obama acts as a leader of the American middle class, etc, and not the world economy. He also might not have enough business experience for his proposed action to be taken seriously, were he to make one. That suggests he would have to propose someone else’s solution. Obama’s war with business leaders makes that an unlikely possibility.
At the conference today there were multiple signs that the world’s top economic intellectuals and leaders believe that what we really need is leadership, though no one said it directly until the discussions we participated in during cocktails.
Brazilian central banker Alexandre Tombini said that we must move fast to resolve the confidence crisis, and that the solution must come in a single message.
And Trichet said that we need authorities to who possess unquestioned authority, so that people have confidence in a solution, to deliver that message. What this leader would say, according to Trichet, would have to have 2 key components to it: triggering action – but not despair.
He echoed Larry Summers’ statement earlier Friday at the conference that one of the most difficult problems during a crisis is finding the language that generates concern and action, but that won’t trigger despair.
The obstacle right now is a leader who will deliver that message, or a lack there of.
These are solvable problems, said Summers. We just need action.
One action that has been gaining enthusiasm is the implementation of the EFSF, which could leverage investments by private investors to buy bad bank assets, among other TARP-like stability-increasing functions. However like TARP initially, the EFSF doesn’t have broad support yet.
PIMCO’s Mohammed El-Erian said that the solution will involve convincing healthy balance sheets to engage in funding, which they will only do if they’re convinced that the rest of Europe will participate.
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