>The global economy is teetering on the edge of a precipice. The coordinated interest rate cuts announced by six central banks are necessary but the G7 Finance Ministers meeting with Central Bank Governors in Washington on 10 October must initiate a major recovery plan to stabilise global capital markets, stave off the risks of a global recession and get back on the track to the creation of decent work..
>The G7 Finance Ministers and Central Bank Governors must put in place a coordinated recovery plan targeted at stimulating the real economy in the G7 and beyond. There should be further coordinated interest rate cuts as necessary. Governments should bring forward infrastructure investment programmes as well as measures to create “green jobs” through alternative energy development and energy saving and conservation. Direct tax and expenditure measures should be introduced to support purchasing power of median and low income earners.
Beyond the immediate action, the G7 governments must work to ensure that a crisis of this scale does not happen again. Work on a new regulatory architecture must begin that covers not just banks but also the parallel financial system - hedge funds, private equity and what is left of the investment banking sector. In the future excessive leverage must be limited through counter-cyclical capital requirements applied to all financial institutions. There must be transparency and disclosure and the use of a “precautionary principle” for the prohibition of risky financial products. Tax rules should be changed to provide a level playing field for debt and equity financing of corporations. There must be a capping of executive compensation and an ending of the perverse incentives that have fuelled the destructive speculation of recent years. The remuneration and incentives of management must be re-linked to interests of the real economy and in reasonable proportion to employees as a whole. In short the new regulatory structure has to ensure that the financial system serves the real economy.
>Cooperation must be extended at all levels G7, G8, Europe, OECD and at the International Financial Institutions to avoid regulatory arbitrage and ensure global reach. A meeting of G8 Leaders, with Labour and Finance Ministers should be held in the weeks ahead to map out the details of an emergency recovery plan for the G8. But working people require a seat at the table in these fora. They have little confidence that bankers and governments meeting behind closed doors will get it right this time – there must be full transparency, disclosure and consultation. The Global Union organisations are ready to play their role in this process.