From Crisis to Supranational Integration
- New Directions in Modern Economics series
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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