After the subprime crisis inflicted a strong blow to Western economies, the European Union and the United States have been trying to catch their breath and continue to reform their respective financial sector according to their own beliefs.
The validation by US Senate of President Obama’s financial reform is undeniably a great move forward. However more has to be done, in particular on an international scale with the harmonization of reforms of the functioning of the banking system.
The Global Financial Crisis (GFC) put bank bonuses under the spotlight. Indeed, the latter were responsible for encouraging financial actors - mainly traders - to take highly risky short-term positions that threaten the stability of the entire banking system.
To avoid the international financial system falling like a house of cards once again, both the US and the European Union have decided to take strong contradictory measures.
In essence, the EU intends to introduce by January 2011 measures that should increase the difficulty for bankers to gather bonuses. Moreover, securities - share included - would have to make up 50% of all immediate bonuses.
Meanwhile, the US has opted to put in place directives on top management’s salary and bonuses.
As a result, traders will have to choose between these two systems, and the absence of consensus will keep on curbing the general process of reforming international finance.
While the US and the EU have been trying to find the best way toward recovery, Asia has continued its impressive rise, as if the GFC never happened.
Singapore’s GDP rose by 16% between January and April 2010, and a rise of another 13% to 15% is anticipated for the rest of the year.
As for China, it has been confirming its impressive two-digit pre-GFC economic growth. Despite currently experiencing a slowdown and being forecast to fall to one digit, its growth remains very competitive compared to Western growth estimates.
Moreover, China has ideologically challenged the US and the EU. On the 12 July, a prominent Chinese credit rating agency downgraded the AAA rating of Germany, the US, France and the UK, blaming the “big three” (Moody’s, Fitch, Standard and Poor’s) for their ideological support of Western economies. By taking this step, China has openly contested the hegemony of the “big three”.
It is now obvious that if on the one hand the GFC has demonstrated the huge vanity of the Western world, it has on the other hand accelerated the rise of Asia. To put it into Dominique Strauss-Kahn’s words, “Asia’s time has come.”
Arnaud Eard
Arnaud comes from Paris and gained a MA in International Political Economy at the University of Sheffield. He has been interning at Bluegrass Consulting since May 2010.
