Michel Camdessus is a former governor of the Bank of France and a former president of the International Monetary Fund. Oliver Rowland spoke to him at a conference about the financial crisis organised by Monaco Méditérranée Foundation.
As we start to recover from the economic crisis, what is changing in terms of how banks operate?
The crisis developed largely due to an absence of rules on the financial markets. The G20 (group of the world’s top industrialised nations) agreed that there must no longer be any financial sectors or institutions or types of transactions that are not checked or supervised; which was revolutionary.
It was an ambitious decision, as it involves a huge area which up until then had been left out of public control – the IMF itself was previously barred from getting involved.
So, one of the first responses to the crisis was to take regulatory measures, which were not previously possible. Negotiations are ongoing.
There is a problem of cultural differences between the two sides of the Atlantic and structural differences in the way the economies are financed, which makes it difficult to agree on shared rules; but doing so is important. This explains why at the moment people are a bit disenchanted and think things are moving slowly.
The lobbies are at work – there are four per member of the House of Representatives, paid by banking associations, to prevent changes, so we are in the midst of an important battle but I think things are going to come out of it that will go in the right direction. It is important not to rush.
When you look at history you can see the need for occasional crises in order for things to change but it is important that change does not start during the crisis and then get forgotten about, which happened with the Asian economic crisis 10 years ago.
In that case the crisis finished almost too quickly, because the IMF worked hard, and then reform was forgotten and there was another crisis seven years afterwards.
Another important aspect in recovery is making sure that where there are international problems there are international organisations powerful enough to take the situation in hand, notably the IMF – which was previously forbidden access to the financial sphere and was only concerned with monetary matters.
It must have competence to be involved in this area, to supervise, avert crises and propose solutions – it does not have this yet. The IMF is the only legitimate body for this role.
It has 185 members and is truly international. The challenge will be to link the G20, with its political clout, with the structure of the IMF.
If you have no rules or gendarmes you get problems with behaviour – bankers are going to start “speeding” and behaving in ways that are extremely dangerous for savers.
It is important to correct behaviour which has brought the world economy to the brink of the abyss.
Neo-liberal economic theory has tried to separate the economy from ethical principles but because safeguards were removed there has been crazy behaviour. We need to re-establish safeguards and a sense of ethics.
We need a greater sense of responsibility from banks and businesses and also a sense of international solidarity and world citizenship.
We have world institutions but they need to be supported by a world public aware of their responsibilities.
Another urgent issue is the necessity of finding economic solutions to the depressed economic conditions.
Governments have made a considerable effort from public finances to respond to the immediate problems we had in autumn 2008 and they are now in a lot of debt and lack of means to respond to the depressed economic climate. We see one of the results in the Greek crisis.
Monaco seems to be in a good situation and is lucky to live in symbiosis with France, which, having suffered a lot from the crisis, now has the good fortune to be one of the first in Europe to come out of it and a bit faster, a bit earlier and a bit better than the others.
What are your predictions for the coming year?
I think France and Monaco will come out of the crisis fairly well, but it is a fragile prediction because as long as the world economy is not in a better state there are still risks of aftershocks.
How will changes in the banking sector affect the man in the street or the small businessperson?
The man in the street lives in the same world as everyone else, so it’s very important for them that the financial crisis be brought under control. They have suffered in the management of their savings. States are going to reinforce measures to protect savings and guarantee deposits, to avoid people like you and me having to worry about the robustness of their saving methods in the future.
As for small businesses, I think it’s important for governments to encourage banks to go as far as possible in supporting them – a lot are not doing it enough. In France there’s a lot of debate over bank charges, people have the impression that banks charge too much for operations that should either be free or a lot cheaper.
I think the banks should try to come up with solutions that fit their customers’ needs better.
