What Is the Real Global Crisis We Face?

What is the real global crisis we face (in the short- and long-terms)?

What can we do about the crisis?

Introduction

The financial crisis of 2008 exposed vulnerabilities in the economic and financial policies of O.E.C.D. countries, prompting action and reform on the part of world leaders and multilateral institutions. While collective efforts prevented a global depression, the world economy has not recovered completely. We are currently facing a European currency crisis that threatens to drag the world into a second recession. Moreover, global unemployment persists three years after the crisis, with the real risk of creating a class of permanently unemployed individuals in the longer term. Both governments and multilaterals must manage both the short-term and long-term challenges in order to return to global growth.

Short-Term Issues

The most pressing issue in the near term is the euro predicament. European leaders must deal with the currency crisis effectively in order to restore faith in the currency and financial markets. If European governments and institutions cannot reach an expeditious agreement on how to prevent the collapse of the euro, a second recession is almost certainly a guarantee. Both the governance structure of the economic union and immediate measures to protect the most vulnerable members of the union need to be addressed.

As of this date, the two primary leaders of the euro zone, Chancellor Angela Merkel of Germany and President Nicholas Sarkozy of France, have begun talks regarding transparency in the governance of the economic union so as to prevent future debt crises that can destabilize the currency. The proposed reforms outline future regulations for countries as well as the roles for non-governmental institutions, including the European Central Bank (ECB) and the International Monetary Fund. The proposal also includes measures for managing Italian and Spanish debt. However, there have been no proposals to allow the ECB to...