Editorial: Peripheral Care Should Be the Central Concern

The current global financial crisis is different from all the others since the end of the second world war, George Soros argued in a Financial Times editorial. Among other measures, both Europe and the US in effect guaranteed that no other important financial institution would be allowed to fail. This necessary step had unintended adverse consequences: many other countries, from eastern Europe to Latin America, Africa and south-east Asia, could not offer similar guarantees. As a result, capital fled from the periphery to the centre. The flight was abetted by national financial authorities at the centre who encouraged banks to repatriate their capital. In the periphery countries, currencies fell, interest rates rose and credit default swap rates soared. Institutions such as the International Monetary Fund face a novel task: to protect the periphery countries from a storm created in the developed world. Global institutions are used to dealing with governments; now they must deal with the collapse of the private sector. If they fail to do so, the periphery economies will suffer even more than those at the centre, because they are poorer and more dependent on commodities than the developed world. They also face $1,440 billion (€1,060 billion, £994 billion) of bank loans coming due in 2009. These loans cannot be rolled over without international aid. Read more. (Subscription required.)