Abstract

The paper would discuss how the sudden worsening of the US financial crisis in September 2008 together with international contagion brought the world on the verge of a new great depression and unexpectedly caused the birth of a G20 at the level of Heads of States and of Governments. The political effect of these events was to accelerate a shift of international influence from Europe to Asia – a shift which had already been in progress from an economic point of view for more than a decade, but which had not been properly recognised. In this way, while European decision makers initially seemed to take charge in the autumn of 2008, taking advantage of US difficulties, they discovered later that they were becoming the main target of international governance reform. The paper will discuss how the political process interacted with the chain of events and economic forces in determining the new direction of: international cooperation, financial bailouts, extraordinary financial and monetary measures, economic stimulus packages, regulatory reform, and the refinancing and reforming of international financial institutions. The behaviour of governments, central banks, regulators and international financial institutions will be discussed.