Columbia International Affairs Online: Working Papers

CIAO DATE: 11/2010

A New World Economic Order: Overhauling the Global Economic Governance as a Result of the Financial Crisis, 2008–2009

Tapani Paavonen

October 2010

Finnish Institute for International Affairs


The recent economic crisis, 2008–2009,1 is commonly characterized as the worst since the Great Depression of 1929–1933. This recent crisis, called also the Great Recession, seems to form a turning-point in the global economic governance and the development of the world economy. Two critical points of view dominate the developments since Autumn 2008: Firstly, governments and central banks in different countries, under the leadership of the Group of Twenty (G-20) (see pp. 37–39), were capable of taking prompt action against depression. Not only did the political decision makers react to the actual situation but the G-20 undertook to design an ambitious long-term programme to bring the very phenomenon of the business cycle under control at last. The G-20 managed to evoke wide-based international cooperation not only among its twenty members but also among existing international organizations such as the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO) and a number of more specific bodies. This is even more astonishing since deregulations have been the recent trend in economic policy. Secondly, the developments since Autumn 2008 have revealed the increasing weight and significance of the emerging and developing economies in the world economy. It has been a gradual, even incremental process, lasting for decades, but during the recent couple of years, a sudden shift seems to have taken place in the apparent “power relations” within the world economy.