(RFE/RL) -- The economic crisis that has sent stock markets worldwide into freefall now looks almost certain to spark a major overhaul of the global financial system.
To speak of freefall is no exaggeration. Both the U.S. and Japanese stock markets on October 15 suffered their biggest one-day losses since the crisis began.
European stocks tumbled more than 5 percent in early trading on October 16 and Hong Kong shares have fallen by a similar amount.
And as the crisis continues, it seems to only grow larger. The U.S. government reported on October 15 that retail sales in September fell 1.2 percent -- twice the drop expected. And the threat of a global business slowdown turning into a recession is now scaring investors as much as the banking crisis.
Small wonder, then, that many world leaders are now talking about not just fixing the current problems but rooting out their causes.
Concluding a two-day meeting in Brussels, the 27 EU leaders called for convening a summit on world financial reform.
French President Nicolas Sarkozy said he hoped the summit, to include other members of the Group of Eight (G8) leading industrialized states could be held as early as next month. Sarkozy also said that U.S. and European leaders have agreed to meet on October 18 to prepare for a summit.
"Our priority now is the conference on Saturday evening with the president of the United States to prepare the global summit that the world needs to reestablish a capitalist system, a financial system, a monetary system, and now we have, along with [European Commission] President [Jose Manuel] Barroso, the necessary mandate from the 27 [EU members] to go ahead."
No date for the global financial summit has yet been set. G8 representatives said in Washington on October 15 that a meeting should be held "at an appropriate time in the near future" but set no time frame.
Return To Bretton Woods?
The French president, who is known for passion in his speeches, spoke of the need to create a "new form of capitalism." And he directly attacked the current financial system as putting its own interests first at the expense of businesses and citizens.
Those are words likely to find many sympathizers today. But what kind of "new capitalism" are Sarkozy and the other European leaders thinking of?
"Not a single financial institution must escape from regulation and surveillance -- transparency for all financial sectors, without any exception," Sarkozy said. "[We need] an [executive] pay system that must be reviewed inside and out in order to discourage blind risk taking and directors and CEO who must be held accountable for their decisions."
In other words, the EU leaders are proposing a far more globally regulated international finance sector. That would change today's situation where banks span national borders but their regulation is mostly in the hands of individual states acting within their own borders.
British Prime Minister Gordon Brown provided some additional details on October 15 in Brussels. He said the overhaul would require vision similar to that of the Bretton Woods conference, which laid out the international financial and monetary system in the 1940s.
"Bretton Woods" are words likely to be heard much more in the coming days.
Originally, they referred to the UN Monetary and Financial Conference held by 44 allied countries at the end of World War II. The site of the 1944 conference, Bretton Woods, New Hampshire, became the common name for the international regulatory order then agreed upon.
That order was far more regulated than it is today. It included tying the value of every country's currency to the amount of gold that it held, resulting in fixed exchange rates between currencies.
However, the gold standard for most currencies ended in the early 1970s, when a trend toward deregulation created the current world financial order. The current financial order is commonly referred to as Bretton Woods II.
In effect, Sarkozy and Brown are now calling for a Bretton Woods III, another major rethinking of how the global financial system should operate.
Brown spoke on October 15 of "very large and very radical changes." He is urging rebuilding of the International Monetary Fund as the keystone of global market regulation.
He is recommending that a group of supervisors from major states to monitor the world's 30 largest financial institutions. And he wants to create much greater transparency regarding speculative activities that contribute to boom-and-bust cycles such as that in the U.S. housing market, which then spread worldwide.
With everyone agreed that a major international conference on the global economy must take place soon, such calls for reform are only likely to grow louder and louder. Then, the hard business will begin of trying to turn them into a new and more workable global order.