Friday, January 16, 2009

Italy Suggests Global "Legal Standard": A Viable Financial Measuring Stick?

In today's Financial Times, we find an article by Guy Dinmore entitled "Italy calls for 'legal standard' on world finance."

Italy's finance minister Giulio Tremonte thinks he can persuade the G7 to adopt a new global financial standard--"just as once there was a gold standard"--to discipline world financial markets. He thinks he has the support of France's Sarkozy and Germany's Merkel.

The idea is to bring "tighter financial regulation" through a "legal standard" that would be "the minimum basic set of rules on propriety of international activities and transparency which the whole international community is expected to respect."

Hm. Nice idea. But...

My first reminiscence was about the UN, an optimistic creation that came about in another time of abject pessimism. The second was the Bank of International Settlements, intended to regulate foreign exchange after it became apparent that the world was abandoning the gold standard. My third was the Doha round of talks, meant to free trade relations as the international community struggles with the seeming impossibility of applying free-market theory to the real world.

I stopped there. No point in prolonging the agony: These three international cooperative efforts--but not only these three--have been failures. I wonder where Italy's finance minister gets the courage to attempt another such unrealistic idea.

According to the article, he thinks that the trading nations of this world would abide by "a mix of voluntary and binding codes" that "would be closely monitored with a wide range of tools, including peer review, naming and shaming, indicators and 'black listing ... for "rogue" economies.'"

OOooooooo. These sound ree-e-e-e-eally scary (not).

The Organization for Economic Cooperation and Development is helping work out the details. They will suggest "an anti-bribery convention, principles on corporate governance including state-owned enterprises, guidelines on multinational enterprises, standards of transparency and cooperation on tax, principles on disclosure of financial information, existing G7 task force recommendations on money laundering, and standards on international property rights."

Remember, every nation would have to participate to make it work. I wonder how many legislators of participating G20 countries would tremble at the thought of being named and shamed--places like China, Russia, Argentina, ... why, even Europe and the US.

As recently as yesterday, the USA--the supposed bastion of the free market--raised the (already existent) import tariffs on French Roquefort goat cheese. (See this article in the French newspaper Le Monde.)

"What?!? Qu'est-ce que tu dis?!?"

[Thanks to for this picture of their cute little French goats, admittedly from Poitou and not Roquefort.]

Did you know Americans already pay a 100% import duty on Roquefort cheese, and that it will now go up to 300%? And that you will now have to pay 100% duty on French "meat, fruits and vegetables, mushrooms, cereals, chewing gum, chocolate, chestnuts, fruit juices, mineral waters, and fat products"?

Of course, this will spark a lawsuit by the European authorities at the World Trade Organization (WTO) against the US. Their statement (my translation): "It is clear that this decision of the American administration signifies that we will have no other choice but to begin preparations to bring this matter to the WTO. Important efforts have been made to find a set of rules that could be accepted by the various parties in the current conflict. This task has now been rendered more difficult."

Oh, I forgot to tell you that the EU had previously banned US beef on the (unsubstantiated) grounds that the hormones in it are dangerous.

Just like a couple of five-year-olds.

Does Mr. Tremonti really think a "legal standard" will do the trick? I doubt it. His ideas are in a huge bag labeled "Wishful Thinking," especially when you consider that the supposedly most capitalist countries of them all can't even stop bickering about beef and cheese (never mind get rid of subsidies of American sugar, rice, et al., or agree to abide by some vague and relative international financial "legal standard").

The irony is that the international community is passing by the very thing that has any chance in hell of carrying some weight: The gold standard itself, or some modern form of it designed to avoid the pitfalls that caused its demise in 1971.

The gold standard, as contrasted to a "legal standard," is tangible, physical, and precise. It is literally measurable, not just approximate. It is based upon something with a specific density, weight, and chemical composition, whereas a legal standard is based upon morality; and everyone knows that morality is relative when it comes to politics.

That the world might obey such a solid, modernized gold standard is perhaps also a pipe dream. I'm not saying that it would not need legal backing; quite the contrary. It will indeed need sharp judicial teeth. But those teeth would at least have a solid-gold jawbone as a foundation, and not just international good will, which would be a standard with about as many rotten holes as Roquefort cheese.

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1:39 PM  
Blogger Katy said...


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2:51 PM  
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