Editor’s note: The very first VoxEU eBook came out a few days after Lehman Brothers triggered the Global Crisis. In retrospect, the basic advice provided by the authors -- Alberto Alesina, Michael Burda, Charles Calomiris, Roger Craine, Stijn Claessens, J Bradford DeLong, Douglas Diamond, Barry Eichengreen, Daniel Gros, Luigi Guiso, Anil K Kashyap, Marco Pagano, Avinash Persaud, Richard Portes, Raghuram G Rajan, Guido Tabellini, Angel Ubide, Charles Wyplosz and Klaus Zimmermann – seems surprisingly valid even today. But that was because while the Global Crisis was unique in its size and its origins were difficult to understand in the beginning, the solutions were time-tested.
All the authors agreed that the priority was: a quick bank recapitalisation with global coordination. Most agreed on a second step, namely, a guarantee of deposits and/or loans with global coordination. There was less agreement on the third main solution: coordinated macroeconomic stimulus.
We are in the throes of what is almost certainly the most serious economic and financial crisis of our lifetimes. The crisis is no longer a US crisis, or even a US and European crisis; it is a global crisis. It has spread from the financial sector to the real economy. It is not just investment portfolios and retirement accounts at risk, continued turmoil will soon start to destroy jobs.
There is a need for urgent action. The policy response needs to be decisive. It needs to be global.
With this sense of urgency in mind, we have assembled a group of leading economists to offer priorities for crisis response. This is not a homogeneous collection of experts. The contributors are from different continents and different schools of thought.
The G7/8 finance ministers meeting: An opportunityGlobal economic and financial leaders are convening this weekend in Washington DC for the annual meetings of the IMF and World Bank. G7/8 finance ministers will meet Friday on the sidelines of the Fund/Bank meetings to craft their response. The global financial community will assemble the next day at IMF headquarters. This is a golden opportunity for agreeing a coordinated plan.
The authors of the thirteen essays do not agree on every point (there was little or no coordination among them as this initiative was launched on mid-morning of 8 October). Nevertheless, there is a remarkable degree of consensus on what must be done.
Policy makers must move boldly to stabilise the financial system. The basic elements are:
- A quick bank recapitalisation with global coordination
- A guarantee of deposits and/or loans with global coordination
- Further, coordinated macroeconomic stimulus.
All the authors agreed on the first, many on the second and a good number on the third.
Download the essaysHere is the link to the short booklet entitled “Rescuing our jobs and savings: What G7/8 leaders can do to solve the global credit crisis.” It is only 38 pages long.
The authors are: Alberto Alesina, Michael Burda, Charles Calomiris, Roger Craine, Stijn Claessens, J Bradford DeLong, Douglas Diamond, Barry Eichengreen, Daniel Gros, Luigi Guiso, Anil K Kashyap, Marco Pagano, Avinash Persaud, Richard Portes, Raghuram G Rajan, Guido Tabellini, Angel Ubide, Charles Wyplosz and Klaus Zimmermann.