The COMECE (Catholic Church in the European Union) Secretariat recently published a paper entitled ‘A Financial System Serving the Common Good in Times of Systemic Change’.

The need to reform the international financial system has been on the agenda for the last 14 years, ever since the collapse of Lehmann Brothers (who still remembers them nowadays?) which triggered a crisis in the international financial markets, which in turn triggered an economic recession.

Nations had resisted calls for a reform in the international financial system, especially the call to have a global financial authority, and introduced new regulation in response to the outcry caused by a lack of adequate corporate governance. The call for a reform in the financial system is being renewed.

Since 2007, the global economy has had to grapple with a very severe recession. Several governments had opted for fiscal austerity, while a loose monetary policy was adopted. This enabled a lot of money to be pumped into the economy at low interest rates. A number of countries had not emerged fully from this recession by the time the coronavirus struck, which caused another economic downturn. Monetary policy remained loose, but in the face of the coronavirus, governments also adopted an expansionary fiscal policy to prop up their national economy. 

While all this was happening, climate change and its impact moved to the top of the agenda, after that it had been ignored for several years. The financial system is also having to take account of this change in mood regarding climate change.

There is the need for innovative solutions which take account of the common good

These two developments are often seen as two separate crises. However, Pope Francis had stated in 2016 that, “We are faced not with two separate crises, one environmental and the other social, but rather with one complex crisis which is both social and environmental”.

There are still those who are ignoring both the impact of the pandemic and the impact of climate change in our daily lives. There are also those who believe that we will go back to the pre-coronavirus normal. I believe that whether we like it or not, we will not be going back to the pre-coronavirus normal, and the impacts of the pandemic and of climate change are real.

Therefore, our society and our economy are indeed going through a systemic change. The world’s political and economic leaders have a choice – either let the change follow its own course with a great number of imponderables and disruptions, or to seek to lead the change process and set parameters for action.

The financial system is one of those factors that needs to be taken into consideration in this systemic change. The paper published by the COMECE Secretariat argues that financial institutions, products and mechanisms are not neutral and need to be reassessed in the context of these new realities. 

In a world of low interest rates, the indebtedness of countries (through their government), businesses and individuals has increased significantly, especially in the last two years. This debt has to be paid back. Worse still, interest rates are expected to rise to address the issue of rising inflation. Paying back this debt will cause stress to the wealth-creating part of the economy – businesses and individuals. Public debt is also paid back by absorbing resources from the wealth-creating part of the economy.

The solutions that were used in response to the sovereign debt crisis of 10 years ago can no longer apply today. As such, there is the need for innovative solutions which take account of the common good.

Emerging from this period of systemic change can result in the poor becoming poorer and the rich becoming richer. Moreover, since the last international financial crisis, the process of globalisation has continued.

The crisis we have today can also be considered to be a global crisis. Therefore, the financial system needs to have some form of global regulation. It is a resource, which if harnessed properly, can be a significant contributor to enable everyone (and not the few) to emerge from this process of systemic change better off.