Following the wake of the war in Ukraine, a global panic has set in with the rising cost of living and prophets of doom predicting swelling inflation.
While the alarm bell is ringing for many, a former World Bank chief says anxious rhetoric could make matters worse and that the global economic model must be reinvented to prevent rising inequality.
The world order shifted after Russian president Vladimir Putin invaded Ukraine in late February, prompting the West to slap sanctions on Russia which in turn have caused Putin to weaponise Russian gas exports to Europe.
“The issue is that the more you repeat things, the more central banks move in that direction, the more it's a self-fulfilling prophecy,” Bertrand Badré, who was also the chief financial officer of the World Bank, said in an interview with Euronews Next at the International Financial Forum in Paris.
“We have to kind of see what's going on, not ignore the signals. Be cautious but also not just jump to conclusions,” he said.
But those signals point to a downturn that was worse than predicted.
Last week, the European Commission revised its inflation forecast for 2022 from 6.1 per cent to 7.6 per cent.
Many economists are predicting a recession for the eurozone but for the moment, European officials are keeping tight-lipped on that possibility. However, Badré does not believe the current economic woes will be as bad as the 2008 financial crisis.
“I don't think there is a Lehman Brothers in the making,” he said.
“So, there are tensions; obviously, there's a war in Ukraine. But at the same time, the pricing of agricultural and energy products are coming a little bit down”.
Badré, who authored the book Can Finance Save the World, said governments should be working together and not build walls during this period, which is not happening at the moment.
“I think none of these issues will be solved by a country alone,” he said, adding that if countries isolate themselves it will be “damaging for everybody”.
“Now is the time for some relocation of production, now is the time for being more cautious with your supply, but it's also time to work together”.
The world’s acid-test
After his tenure at the World Bank, Badré founded and is the chief executive officer of BlueOrange Capital, an investment fund that aims to finance the United Nation’s Sustainable Development Goals.
The 54-year-old said as the world order changes and the current model of globalisation is questioned, people should also be thinking about what he calls “planetarisation,” issues the planet is facing such as climate, biodiversity and refugees
“We should not move away from the planet. We have to move away from a certain form of globalisation which was put together over the past 50 years. I think it is responsible for the limits we see today,” he said.
Asked if the financial worries could impact investment on green and sustainable investment, Badré said this is the ultimate “acid test” and that this is the moment “to stay firm” and not deviate from sustainable goals.
How to solve inequality
The global economy was already battered by the impact of lockdowns due to the coronavirus pandemic before the ripple effects of the war in Ukraine hit the world’s financial systems.
Commodity prices have as a result reached record highs, the UN’s Food and Agriculture Organization (FAO) in April said food prices are 34 per cent higher than this time last year, and have never been this high since FAO started keeping record.
Rising food prices, energy prices and tightening financial conditions have caused inequality to increase.
Badré said stopgap measures, for instance, government cash handouts to those most affected or systems such as a universal basic income or taxing the rich, only really work on the surface.
He believes the whole economic model needs reinventing to prevent inequality.
“Quick fixes are like the pediment sequences from Rome. 'Give them something so they don't bother us,' though I think it's not respectful at all,” Badré said.
The real solution, he says, is to work on education, training and salaries, which he calls the “bread and butter of the economy between the 1940s and 1980s” which have been dismantled.
“The quick fixes are worth being discussed but I think it's mostly symbolic or marginal,” Badré said.
“The real fix would be to really provide opportunities for everybody within the system, not repair from the outside”.