Wednesday, April 15, 2009

Rebuilding the financial system in order to kick-start the economy

For a long time, finance used to be subordinate to economic activity. In the past twenty years or so, this subordination has been reversed. The crisis we are now going through initially affected the financial sector before spreading to all parts of the economy. Today, we have to tackle the most urgent problems first: the collapse of world economic activity, the rise in unemployment, the risk of protectionism and the threat of social tensions are calling for vigorous policies. The financial crisis has by no means been settled, however. As long as it lasts, the economy will not re-start. Reviving it implies a rebuilding of the financial sector and for that it is necessary to re-establish confidence between the economic players and the financial markets.

This confidence is currently disappearing at a rapid rate, giving way to mistrust and fear. The paralysis engendered in this way means that those with the resources to invest, to purchase and to make the industrial bets needed for tomorrow are doing none of these things and the economy is therefore immobilised.

At the forthcoming G20 summit meeting to be held in London on 2 April, certain crucial decisions may be taken to reverse this cycle of mistrust and change the rules that have led to the catastrophe (how could anyone imagine that the same rules that brought us into the crisis could get us out of it?). Also, it may help us return to a normal state of affairs in which finance is just a useful, albeit imperfect, stimulant for the economy.

To this end, the Institut Montaigne is proposing four concrete lines for immediate action.

Download the document [French]