The New Global Political Economy

The New Global Political Economy

From Crisis to Supranational Integration

New Directions in Modern Economics series

Riccardo Fiorentini and Guido Montani

The expert authors provide an in-depth analysis of the causes of the financial crisis and the political economy measures required to build a safer and more stable international order. They show how the financial crisis is deeply rooted in the flaws of the dollar standard and explain why the dollar and globalization should be considered together to understand the present challenges. By way of conclusion, the authors propose the creation of a ‘World Eco-Monetary Union’ with the power to regulate the global economy and to promote sustainable development.

Chapter 1: The invisible Leviathan

Riccardo Fiorentini and Guido Montani

Subjects: economics and finance, financial economics and regulation, international economics, money and banking, political economy, radical and feminist economics


Like the world crisis of 1929, the financial crisis of 2007–8 triggered dramatic economic damage and a sharp awareness of the irreversible decay of the international order established after the Second World War. From the US, the financial turmoil spread to Europe and other industrialized countries, bringing on bank failures and unemployment. A great number of emerging economies suffered a sudden stop of foreign financial funds; international trade and output collapsed. But the political reaction was very different from what happened after the 1929 crisis, when all national governments tried to save themselves without considering the negative effects of their policies on other countries. Promptly the G20 was set up and the response of the industrialized and the emerging countries, in the spring of 2009, was a global plan for the recovery of the world economy. This plan was to some extent effective. International cooperation rather than self-sufficiency was the main political difference between the present financial crisis and the 1929 world crisis. During the 1930s in Europe and the US, many governments launched national recovery plans, raised high custom duties to protect national industry and employment, and implemented competitive devaluations among national currencies. Keynes’ General Theory offered the best theoretical explanations of the ‘national self- sufficiency’ policy, whose aim is to ‘minimize, rather than . . . maximize economic entanglement between nations.’ (Keynes, 1933). Today, the world’s economic recovery and development cannot be built on the same political assumptions.

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