‘Underhill Group’ makes key contribution to economic crisis debate

16 June 2009

A team of researchers gathered under Geoffrey Underhill, Professor of International Governance in the Faculty of Social and Behavioural Sciences (FMG), is making an important contribution to the financial crisis debate. In recent months, the ‘Underhill Group' has been a regular presence at consultations between international policymakers, such as the G20.

International policymakers are urgently seeking answers to the questioned raised by the financial crisis - questions concerning better financial supervision and regulation. A team of researchers gathered under Geoffrey Underhill has been working for some time now, supported by a series of research subsidies, to develop his research into concrete policy proposals. The first indications that the research results produced by Underhill and his fellow researchers were starting to get through to the policy debate came during talks organised by the South African Ministry of Finance and that country's central bank in cooperation with the NGO Reinventing Bretton Woods Committee (RBWC). The conference was held a few days before the G20 summit in Durban (in September 2007), just as the crisis was breaking. At the conference, Underhill presented a briefing that the African countries had already used in their preliminary discussions for the G20 summit. As the full tumult of the crisis unfolded in 2008, Underhill was invited to attend forums and panel discussions at Chatham House in London, SAIS in Washington DC, Joseph Stiglitz's Initiative for Policy Dialogue, the Canadian Ministry of Finance and the Centre for International Governance Innovation in Canada, Harvard Business School, amongst others.

Reform proposal

In recent months too, Underhill has been closely involved in the policy dialogue, building on his involvement in various research networks such as the International Monetary Convention Project, the German Institute for International and Security Affairs in Berlin (SWP) and the World Economy and Finance programme. The run-up to the recent G20 summit in London in April 2009 offered a fresh opportunity to present research results to policymakers. During discussions prior to the summit, and in the framework of the Transatlantic Economic Dialogue in Berlin on 26-27 March 2009, Underhill was able to present a proposed ‘precautionary principle' for reform. The principle consists of international supervision of banks, based in part on successful practices from the Canadian banking system. It addresses the issue of complex, innovative, securitised financial products. A major conference in Paris followed on 30 March 2009, organised by the central bank of France and the RBWC, on the topics of the macro-economic situation, economic incentive packages and (potential) crises in new EU member states. According to Underhill, ‘It became apparent that there were far fewer differences of opinion in the run-up to the G20 than the media and press officers were reporting, and that the G20 summit was certainly not going to end in discord'.

Macro-economic imbalances

The supposition is often voiced that the financial crisis struck without any warning, but Underhill disputes that idea. ‘Along with a series of economists and policy experts, I have been arguing for some time that the financial system was facing serious problems. These problems are a consequence of macro-economic imbalances in the global economy and an improper approach to regulation and supervision. The market-based approach to financial supervision that has developed since the mid-1990s has major problems. In part because the underlying assumptions about the stability of the financial system are dubious.'

New approach

Moreover, international standards for financial supervision exhibit quite a few shortcomings, Underhill argues. ‘Those standards were created by private parties under the influence of lobbying. As long as the policy process is restricted to a technical discussion between risk managers from the private sector and financial supervisory authorities from developed countries, the new policy is unlikely to generate financial stability for the public at large. However, the public ultimately pays the price for errors in financial supervision. Now that the crisis has hit, policymakers are clearly looking for a new approach.'

€ 3.2 million for research project

The ‘Underhill Group' will accordingly continue to be a regular feature at debates on the crisis in the coming months. The research on which the input for all these conferences ultimately relies will be financed by a new project subsidised by the Seventh European Framework Programme. Entitled ‘Politics, Economics, and Global Governance: the European Dimensions' (PEGGED), the project started last summer and has received € 3.2 million from the EU. The University of Amsterdam (UvA) is the main participant in this project; partner institutes in the initiative include the University of Oxford, London School of Economics, the Graduate Institute of International and Development Studies (Geneva), ECARES at the Université Libre de Bruxelles, the Centre for Economic Policy Research in London and the European University Institute in Florence (EUI). ‘We will continue to leave our mark on the policy process, both now and in the future', Underhill concludes.

Published by Faculty of Social and Behavioural Sciences