Strengthening International Governance

In the 2013 DGAP Yearbook, 80 experts describe ways for the state to regain its ability to take action

13/03/2013 | by Josef Braml, Stefan Mair, Eberhard Sandschneider

Diplomatisches Magazin 3, March 2013, p. 38-39

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Not only have the financial and debt crises led to massive economic problems. They have also dramatically restricted the state’s ability to act. Up until now the response has been half-hearted, the efforts of nations to go it alone have been enormous, and the reach of WTO regulations has been minimal. Expectations are therefore high for politically and economically stable Germany. The latest DGAP Yearbook gives valuable insight into how Berlin should handle its new leadership role.

Frank Grunwald, CC BY

Can international trade take care of itself? Protectionary measures become more popular in hard times

If the lack of a state regulatory framework was a contributory cause of the financial markets no longer functioning correctly and then trigger political crises, then there is only one route out of this vicious circle: efforts must focus on regaining a gradual capacity to act at a national and particularly at an international level.

Indeed, a comprehensive catalogue of reform measures was presented in the plan of action of the international Financial Stability Forum (FSF), which was created after the outbreak of the crisis, to newly regulate equity regulations, rules on liquidity and the derivative and securitization markets. The measures in most countries were taken under the impression of supposed financial interests and are controversial in their effectiveness.

With regard to these disputes, however, we should not lose sight of international developments: namely the movement of the political and economic balance of power in favor of emerging markets. One example of this movement of power is the redistribution of voting rights in favor of previously unrepresented emerging markets in international organizations such as the international Monetary Fund.

But not only Western countries but also Asian emerging markets have suffered due to a fall in demand from industrial states, among other things, as the analyses of individual countries in the current DGAP Yearbook show. The financial crisis led to serious collapses in trade, in direct investments and in cash flows. The liquidity squeeze in the financial markets had a negative effect on trade.

As the case studies in the DGAP Yearbook make clear, for many countries the temptation persists to create short-term relief for their own national economy through protectionist measures. Due to an insufficient set of rules, the World Trade Organization (WTO) is today powerless against export restrictions, for instance on agricultural products, minerals and metals.

The WTP can achieve just as little against discrimination in national orders and the manipulation of exchange rates. Also problematic are indirect measures with a protectionist effect: discriminatory state intervention programs that are supposed to support demand in specific sectors, or investment incentive schemes with selective effects.

Germany is growing in strength, particularly within the framework of the EU, and has the necessary weight when entering negotiations with larger trading blocs. “The European Union is the means of giving Europeans a voice in the world,” claimed Federal Minister of Finance Wolfgang Schäuble in his contribution to the yearbook.

As the strongest leading economic and political power in the EU, the requirements and expectations of Germany have risen. after initial hesitation, the Federal government also accepted this role. Nevertheless, there are two restrictions. The first, internal one, can be found in the question of where the limits lie for the German national economy and society in accepting European and international obligations. Political leadership here would primarily mean convincing the population.

The other aspect of self-restraint – due to external reservations – is due to the fact that some partners have fears and worries  about German hegemony based on historical experience. However, when the Polish Foreign Minister Radosław Sikorski said (on  28.11.2011 in his speech at the DGAP): “today I fear German power less than I do German passivity”, then we should think more  intensively about our role in Europe and the  world. The problem-oriented analyses and perspectives of the DGAP’s current international relations yearbook, that is to say the combined expertise of 80 renowned representatives from the worlds of science, economics, politics and the media, want to make a further contribution to the debate.

 
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