Start by Saving the Eurozone

The current global financial crisis has clearly underlined the need for more effective mechanisms of international cooperation. The stumbling initial response of the G7 risked prolonging the credit crunch. Today, while panic has eased somewhat in wealthy countries, the crisis is spilling into developing countries, with potentially devastating effects. Yet there is no coordinated effort to address the problems faced by emerging markets.

As Jeffrey Sachs argues, a Bretton Woods II may be necessary to build a new global financial and economic system. In fact, the multilateral, cooperative spirit of Bretton Woods is urgently needed today. If the crisis only deepens the divide between haves and have-nots, it is difficult to see how an international summit could be successful. And at the top of today’s agenda must be saving the eurozone.

Last week’s coordinated bank recapitalizations helped calm the panic in the wealthiest European countries, but there are signs that the problem has been stamped out in one place only to resurface in another. Most ominously, expectations are rising that some European governments will default on their debts. During the last three months, the implied risk that Ireland, Italy, and Greece will default within five years—based on credit default swap spreads for their sovereign debt—has quadrupled from approximately 3 percent to 12 percent each.

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