Is the World Really in a “Polycrisis”
Does the newly popularised term ‘polycrisis’ best describe what’s happening in the world? There’s no denying that since the 2008 financial crisis the world has been plagued by crises, both acute and widespread – from the hangover of Brexit to the global pandemic.
Many have been using the term polycrisis to describe the simultaneous and overlapping crises facing the world today. This sense of a crisis-ridden world is shared by many, but how accurate is it?
Much ink has been spilled debating whether the notion of polycrisis is an empty buzzword or a relevant concept that can provide new and important insights (Homer-Dixon et al. 2023). In the inaugural session of the 2023 World Economic Forum (WEF) summit, “De-Globalization or Re-Globalization?”, for example, Adam Tooze advocated polycrisis as an apt characterisation of the state of the world, while Historian Niall Ferguson dismissed the term as an “illusion” and “mirage,” arguing that humanity’s present troubles are “just history happening.”
Polycrisis in action: Europe’s decade of discontent
The roots of the word polycrisis, the term conceived by French theorist Edgar Morin in the 1970s, were revived in 2016 by the then President of the European Commission, Jean-Clause Junker. Junker was describing the myriad crises ongoing within the European sphere: governing Europe in the aftermath of the Greek debt crisis, Russia’s invasion of Crimea in 2014 and the Syrian refugee crisis, set against the backdrop of Brexit.
Despite the globalisation of trade, these events show we are now living in a more fractious and fragmented world. US hegemony has been usurped by other spheres of influence – from China to Iran. For corporates and financial institutions, this turning point marks a new era of risk.
Mini budget, major consequences
Greg Jones, CRO, Europe and Asia Region, TD Securities, identifies some recent economic events that typify the key risk factors currently affecting the financial services sector.
“We had a fantastic reaction to COVID-19 from the central banks. They kept the financial industry and the economies on their feet. But then, as central banks and the regulators started to plan for the reversal of that, we ran straight into the liability-driven investment [LDI] episode, which was triggered by the Liz Truss and Kwasi Kwarteng mini-budget in September 2022.
“As we all know, this caused a strong market reaction and led to UK regulators looking at securities, financing transactions, fixed income and the market mechanisms that enabled this incident to happen,” explains Jones.
Ripple effects
Within six months of the mini budget, in March 2023, the world witnessed a US regional banking crisis when Silicon Valley Bank, Silvergate Bank and Signature Bank all failed.
“It’s common, of course, for banks to be strong in some areas and slightly behind in others. But this doesn’t mean that they’re risky or that they’re not in control. It just means that they’re probably not prepared for what might be around the corner,” says Jones.
The regulators came under intense public scrutiny because of the severe nature of these events and, in essence, what they reveal about the industry’s lack of communication and failure of meeting standards. The key for the FS as a whole is to uplift expectations and adhere to them.
While this was a crisis that permeated different regions and populations, whether it can be considered a polycrisis is still open to debate.
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