A new world

PARIS — Last Sunday evening the narrow streets around Place Saint-Michel in the Latin Quarter here were packed with diners and tourists browsing at the only retail shops allowed to open in this city on Sundays.

If the financial meltdown lasts long enough, all shops in Paris — and not just those in tourist areas — may soon be open even on Sundays.

It’s called retail market flexibility, and polls show that the idea is gaining ground here. The French are increasingly receptive to proposals for change in the way they do business. The financial crisis is giving the receptiveness a further boost.

Markets surged Monday as governments and central banks moved with unprecedented speed and coordination over the weekend to address the twin problems of liquidity and solvency in the global banking system.

Now the question is where does the world go from here?

There is still so much uncertainty, and it will take time before public trust in the banking system can be fully restored. People like George Soros are warning that the US responses to the crisis are wrong. There are questions on whether prudential regulation should be suspended or modified, and who should be supervised.

But there is room for self-congratulations. The Europeans are patting themselves on the back for the speed and coordination of their response. There is a mild competition for credit between Britain, whose prime minister, Gordon Brown, drew up the rescue plan that was adopted by Eurozone leaders in an emergency meeting here last Sunday, and France, whose president, Nicolas Sarkozy, called the leaders to the French capital for a common approach to the meltdown.

“We’ve done well,” a French government adviser told foreign journalists.

Amid the uncertainty, the US dollar is regaining its strength and remains the world’s reference currency. The French adviser pointed out that it took two world wars to end the British pound’s status as the global reference currency. The United States, meanwhile, has not defaulted on any debt in 200 years and remains “triple A.” The euro is so strong an ordinary meal here in Paris can buy you dinner in a five-star hotel in Manila. But so far there has been no flight from the dollar and shift toward the euro or any other currency.

What could change is the way the world handles money. Banks must go along with inter-bank lending. Regulators and rating agencies, which are being criticized for failing to carry out their mandate, are likely to see their work more closely scrutinized, although who will supervise the regulators is a yet unanswered question.

Taxpayers, and not just in France, are warily studying bailout packages. They are grousing that they do not want to see failure nationalized and profits privatized.

That kind of sentiment is giving traction to proposals to limit the pay scales, perks and golden parachutes of investment bankers and other individuals who brought the world to this sorry state. Sarkozy wants some form of financial penalty slapped on those responsible for the crisis. But pinning the blame on any particular individual for this mess is tricky.

Sarkozy, who holds the rotating presidency of the European Union until the end of the year, sees a “new world” emerging but describes it as a return to the basic values of capitalism - “putting capitalism back on the right track.”

The “madness” and “irresponsibility” of the free market have to end, he says. Is he referring to the American capitalist system? No one is picking a fight with anyone these days, but it would be interesting to watch which system prevails.

The image world leaders want to project to calm the markets is unprecedented unity in the face of crisis, speedy response and a readiness to infuse an enormous amount of state funds as guarantee against the collapse of the banking system.

* * *

In Sarkozy’s new world, the global economy will return to the core values that made capitalism fuel the growth of Western civilization for seven centuries. The European Union seems to be going along with his view.

In this world order, capital is mobilized for ventures that produce actual goods and add to economic growth. There is long-term commitment to an investment, and profits are earned through hard work rather than speculation.

World leaders are hoping that through a massive state injection of funds into ailing banks — or at least a guarantee of readiness to inject liquidity — people will not hesitate to obtain credit to finance private enterprise that in turn can fuel economic growth.

Concerns have been raised on whether governments will know enough to put the brakes on state involvement in private enterprise. After bailing out banks, will states also prop up industries? That kind of state involvement can throw free market forces awry and distort competition.

Sarkozy doesn’t seem to think so. He has just approved state funding for the French automotive industry’s development of a “green car” to further cut his country’s consumption of imported fossil fuels. The French say the US government did this sort of state support first.

The French government is already supporting several of its industries, notably aerospace. This may be fine for French industries and their workers, but how can private enterprises in less affluent countries compete against the resources of Paris?

Sarkozy seems undaunted by criticism of his ideas. He wants to turn the current crisis into an opportunity. So far his popularity has received a boost from his handling of the crisis. His compatriots, notoriously reluctant to change work habits, are now even showing increasing support for the opening of retail shops on Sundays.

If the world wants to emerge from this crisis and prevent its recurrence, everyone has to be open to enduring reforms. One thing this crisis has made clear: the world cannot go on with business as usual.