By Fareed Zakaria, Global Public Square, September 14, 2011
Today, $10 trillion of foreign exchange reserves are sitting around across the globe. That is the only pile of money large enough from which a bazooka could be fashioned. The International Monetary Fund could go to the leading holders of such reserves — China, Japan, Brazil, Saudi Arabia — and ask for a $750 billion line of credit. The IMF would then extend that credit to Italy and Spain but insist on closely monitoring economic reforms, granting funds only as restructuring occurs. That credit line would more than cover the borrowing costs of both countries for two years. The IMF terms would ensure that Italy and Spain remained under pressure to reform and set up conditions for growth....
The time has come for China to adopt a broader concept of its interests and become a “responsible stakeholder” in the global system. The European crisis will quickly morph into a global one, possibly a second global recession. And a second recession would be worse because governments no longer have any monetary or fiscal tools. China would lose greatly in such a scenario because its consumers in Europe and America would stop spending.
Of course, China would have to get something in return for its generosity. This could be the spur to giving China a much larger say at the IMF. In fact, it might be necessary to make clear that Christine Lagarde would be the last non-Chinese head of the organization.
While Mr. Zakaria may have, and probably does have, an excellent point from the perspective of the solution to the current fiscal and monetary crisis in Europe, there are serious implications for the rest of the world should his proposal be adopted.
We already know that the largest holder of U.S. Treasury bonds is China leaving the U.S. at the political behest of the Chinese. And with the application of this recommendation from Zakaria, China for one would not only be given greater access to the levers of power in the International Monetary Fund; it would be given the "keys" to the agency. We have so elevated the economic health of the world to the place where the health or sickness of a nation is so dependent on the monitoring of the figures that emerge from the multiple instruments "taking the pulse" of any situation that to control those digits is literally and metaphorically more important than controlling the skies, or the seas, or the land through military might.
There is no suggestion here that China would misuse her new-found geopolitical leverage for political control; however, with a large purse, in this world, comes a large voice. We have taken the Rooseveltian phrase, "walk softly and carry a big stick" to mean, quite literally, "walk silently and grasp and hold control of the world's economy" which seems to be the maxim guiding the Chinese.
Try to imagine a China linked to a Saudi Arabia, as the guarantors of such a loan to the IMF, and the implications for global energy needs, global warming, and the shift in the old notion of the "balance of power" from the west to the east and the Middle East for starters.
We already know that China feels and acts differently, for example, on the question of Iranian nuclear energy, the first reactor of which program was activated just this week. The Chinese have made substantial investments in real community infrastructure in Africa, thereby gaining the confidence and loyalty of much of that continent when compared with the west's vaunted "aid to Africa" programs that have left both Africa dependent and the donor countries disillusioned.
It is not that Zakaria's recommendation should be trashed, only that it needs careful and diligent design, implementation and monitoring and those processes requires much more co-operative political will from other nations than we have seen in resolving many other global exigencies.
The global power structure, beginning with the UN, and including the IMF and the World Bank, plus the International Court of Justice and the International Criminal Court all need much more formal and informal support, including membership and willing "fee payers" if we are to establish a world order that is open to international and enforceable norms, and not left to the power of those with the largest banks and bank accounts, as we have left world markets.
It is time, globally, for political leaders to confront the monster in the kitchen that is the economic "darwinian elephant" of the marketplace. Not only must the world's issues NOT be left in the hands of the countries with the largest banks, even the world's fiscal and monetary issues must not be left in those hands, but, in fact, the world's complex issues need political fora with credibility, international respect and international political and legal powers of enforcement.
There must, in other words, be consequences, for national behaviour on the international stage, and that includes international commitments to those actions and agreements that would finally see such rogue agencies as AlQaeda, but not restricted to that group and/or its descendents, and the Taliban. And we have so far seen far too little of that kind of collegiality.
And there is little doubt that the principle of one country-one vote will not likely be able to be applied to such arrangements.
If we ever doubted the shifting sands of geoplolitical power, we can see the winds blowing that sand from west to east, in nothing less than a tornado, in velocity and in strength and we have made far too few preparations for our safety and the safety of our grandchildren.