European and international financial markets: a new era?

The May 2008 Aspen seminar represented a timely occasion to discuss about the current turmoil in financial markets and to assess whether long term changes in structure and dynamics of international financial markets are taking place.The participants analysed the origin and developments of the current turmoil in financial markets and emphasised the central role played by central banks around the globe to restore confidence in the financial markets. As regards the adequacy of regulatory initiatives currently discussed in international fora, it must be seen to what extent self-regulation would be able to correct structural problems if not accompanied by a realignment of the incentives triggered by regulation, as there is a risk of inaction of market participants if there is no perceived “first mover advantage”. There is a need for market participants to reassess some aspects of their activity and in particular the “originate to distribute” business model adopted by credit institutions.Sovereign wealth funds certainly played a stabilising role in the current financial market turmoil. However, in a longer term perspective there is a need to avoid that political concerns could trigger protectionist policies; further transparency of the role and functioning of sovereign wealth funds could play an important role in that respect.Finally, seminar participants discussed the possible spillover of the financial market turmoil on the real economy, with different situations in US and Europe and a possible decoupling emerging. Global imbalances still exist and, together with raising oil prices, might predict inflationary pressure and a lower rate of growth for the global economy. An appreciation of the exchange-rate by China might help to correct such current imbalances.