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Summers speaks on critical state of global finance

World finance is in its most perilous state since World War II, former National Economic Council director Lawrence Summers said late Tuesday at an event at the French Embassy in Washington.
Lawrence Summers
Lawrence Summers
“I believe we are at the most critical juncture in global finance since World War II,” Summers said at the launch of the French-American Global Forum, an event held to celebrate the end of the French Presidency of the G20 countries.

Summers, a Harvard professor, headed the Economic Council in the Obama administration and was Treasury secretary in the Clinton administration.

Like the summit the French hosted in Cannes, the embassy event was supposed to discuss all aspects of the G20 effort, including French President Sarkozy’s efforts on agriculture, but as in Cannes, the topic quickly turned to the European financial crisis and stayed there.

Summers noted that similar declarations were made during the Asian and Mexican financial crises in 2000 and the crisis in 2008, but said he believes the situation now is worse than either of those. In the past there has been talk of institutions and businesses being “too big to fail,” but he said now the talk is also of “too big to save.”

In addition, he said the magnitude of the disturbance is on a global basis, with the problems in the European countries are now affecting all parts of the world.
Anne-Marie Slaughter
Anne-Marie Slaughter
Anne-Marie Slaughter, a Princeton University professor who was previously director of policy planning at the State Department in the Obama administration, said that after 2008 it looked like the crisis would not affect the developing countries, but that is not turning out to be true.

“There is decoupling in the underlying trends,” Slaughter said, “but when you look at cycles around the trend there is no decoupling.”

Slaughter added that the solution to the current finance crisis will have to start in Paris or Berlin., win approval in the European Union and from there go to the G20.

“The solution won’t be forged in the G20. It maybe ratified there,” she said.

Kemal Dervis, a former Turkish economics minister who is now at the Brookings Institution, said that the growing concentration of wealth among a relatively few people is adding to the problems.

“With these imbalances, there can be a lack of demand” and that lack of demand “leads to an extreme export focus,” Dervis said.

Summers added that Americans had been told that globalization and increased imports might cause some pain, but that they would be able to buy goods cheaper. Then they were told that a company might move away to where it could produce goods cheaper. Now they are told that a company will move unless its taxes are cut and their personal taxes are increased. The last is unacceptable to people, Summers added.

“There are a lot of areas of global competition [that amount to] a race to the bottom,” such as tax evasion and bank secrecy, he said, although he noted that those issues can only be addressed at an international level.

Slaughter noted that the tea party and Occupy Wall Street movements have different solutions, but take their energy from the same sense of inequality.

While Jean David Levitte, a former French ambassador to the United States who is now on Sarkozy’s staff, noted that the G20 meets continuously and takes up issues like agriculture, Summers said he believes “the G20’s effectiveness is in doubt.”

Summers said the leaders gathered in G20 were unwilling to admit that Greece was already in default and that problems have worsened since that meeting.

The G20 is an informal gathering of the heads of government and treasury officials of most of the biggest economies of the world, but it does not have official power like the United Nations, the International Monetary Fund or the World Bank.