Sozialalmanach 2010 "Schwerpunkt: Aus der Krise in die Armut ?"

returned to the top of the political agenda. Even free market zealots have been forced to concede that if not government than at least governance has a role to play in the economy.

The neo-liberal era may have come to an end, but whether the crisis indeed marks the ascendance of a new regime is an open question. Some of the rules of economic regulation and policymaking will be rewritten. The economic crisis has brought the world to a new policy crossroads, but it also needs to be acknowledged that the room for manoeuvre and institutional innovation may be fairly restricted, not only because of the likelihood of low economic growth, but also because of domestic and international political constraints.

For one, the process of globalisation is too far advanced to be able to go back to national economic management of the era of ‘embedded liberalism’. As a consequence, some policy recipes that were successful before (including currency devaluations and trade protectionism) are no longer available to national policymakers, in part due to European and WTO economic integration. In this respect, concerted coordinated action at the international level is essential to effectively governing the global economy.

The question of institutional choice and regime change, for present purposes, encompasses two key dimensions. Internationally, the task will be to devise a stable and sustainable system for international cooperation and regulation, which addresses the diverse needs of advanced, developing, and the least-developed economies. At the domestic level, institutional change requires recalibrating the role of the state in shaping a stable economy by combining economic dynamism with a more equitable distribution of life chances.

Walking the fine line between protectionism and protecting domestic policy space will be difficult under the likelihood of low growth.

Discussion is ongoing when and how to withdraw anti-recession spending programs that are expected to increase the EU public debt by 20 percentage points in the three years from 2008 and 2010. But the biggest problem consists of rising long-term pension costs and other age-related expenditure. Though the debt and deficit increases are by themselves quite impressive, the projected impact on public finances of ageing populations is anticipated to dwarf the effect of the crisis many times over. The fiscal cost of the crisis and of projected demographic development compound each other and make fiscal sustainability an acute challenge. In principle, this adjustment could take place via both an increase in revenues and cuts in expenditures.

Effective solutions to the current global crisis require international cooperation, but no government is able to go ahead with an internationally coordinated plan without taking into account issues of domestic legitimacy. Central to the era of ‘embedded liberalism’ was that individual countries were granted the rights to protect their own social arrangements and institutions. Today the objective of international economic arrangements must be to attain the maximum ‘thickness’ in economic transactions (in trade and investment flows) that is consistent with maintaining space for diversity in national and regional institutional 168