Bank bailouts promote "deglobalization"

• Source: Global Times
• [08:33 July 07 2009]
• Comments

Government bailouts of the world’s big banks pose a threat to free trade, Pascal Lamy, head of the World Trade Organization (WTO), said in an interview yesterday.

“There is a danger that the finance industry will be on the side of the forces of deglobalization,” he said.

Lamy said the bailouts had “constrained risk-taking” outside the familiar territories of national markets, and this was already affecting Foreign Direct Investment (FDI), now forecast to fall 50 percent this year.

“If there is less FDI, there will be less trade,” Lamy said, speaking from the annual conference of France’s Cercle des Economistes in Aix-en- Provence.
The WTO head warned that free trade faces its severest test, with protectionist pressures poised to rise.

“I am convinced the worst is yet to come,” he said. “The real stress test is for the future when the shrinking of economies translates into unemployment and social hardship, and that translates into a political reaction that could influence trade policy. The toolbox for protection is a wide one,” he noted.

He said he planned to attend this week’s G8 summit of world leaders in Italy to urge governments to resist protectionist policies and keep the channels of trade open in finance as well as industry.

He said governments had to commit themselves to completing the Doha round of trade talks.

The arrival of new administrations in India and the United States - which have clashed over the special safeguard mechanism to protect poor farmers - had given a difficult process new impetus, he said.

Reuters