Testing times for global financial governance 

Financial interdependence has experienced a qualitative leap in recent decades as cross-border holdings have multiplied, but this has not been accompanied by similar globalisation of financial regulation and supervision, which remain dominated by national authorities, according to the October paper. 

Although this holds true everywhere, the contrast is even more striking in the EU, where high institutional and legislative capacity accompanied by advanced integration would suggest a higher degree of cohesive financial policies than is presently the case, it adds.

The current financial crisis has served to deepen this conflict, according to Angeloni, who suggests that shared risk and the need for swift action necessitate "yet more coordination of financial policies if not their delegation, in part, to supranational institutions".  

Angeloni speculates that EU countries would prefer to surpass the European level by negotiating within a more international framework at the Financial Stability Forum (FSF), which provides a more effective response to the turmoil. 

The FSF has served as a basis for collective policymaking since it received an authoritative G7 mandate last year. This "left no doubt" that in a short time it was expected "to come up with proposals that, given the gravity and urgency of the situation, would quickly become action in all countries involved," Angeloni states. Its ad hoc nature is practical as it provides broad technical expertise, he adds.

The paper suggests that the crisis triggered a move towards closer global coordination, citing the new role of the FSF as proof of this. The "FSF model", which combines "a strong political mandate, broad sectoral and geographical representation of competent authorities and effective internal management," could provide a template for future financial cooperation, but it remains to be seen whether political support for enhanced global cooperation will outlive the financial crisis, the author states.

"The informal coordination arrangements experimented with during the crisis will need to evolve into more stable and lasting institutions," Angeloni concludes, calling for the FSF and the International Monetary Fund to cooperate in order to combine supranational with international governance.