The Call to Action from the leaders of the international development institutions is overdue. In the absence of leadership, most acutely at the international and regional levels, we need to be reminded of the global challenges and the consequences if we fail to meet them. Let me single out two urgent tasks from the leaders’ manifesto – one short term and one long term.

The first step must be to restore confidence in financial institutions. Nowhere is this more urgent than in Europe. Since the last crisis, European policy-makers have dragged their feet in creating transparency in the state of the banking sector. A series of stress tests have failed to impress, and when the European Banking Authority (EBA) was finally given the mandate to coordinate the recapitalization of banks, national supervisors and the industry itself did what they could to frustrate the efforts of the fledgling institution.

As a result of its weak enforcement powers, EBA’s very sensible balance between levels and ratios as targets for the capitalization exercise effectively turned into a simple ratio. For the same reason, dividend restrictions and reduced compensation packages to bank managements were effectively ruled out. Consequently, banks, severely impeded in their access to capital in the markets by the low equity valuations, have turned to shedding assets – working on the denominator rather than the numerator of the capital ratio.

The ongoing disposal of banks’ assets is particularly serious for Emerging Europe, still struggling to recover from the crisis of 2008-2009 and the recent fall in growth in the Eurozone. Authorities are panicking as rating agencies question sovereign credit ratings, announcing radical measures without proper consultation and consideration of the wider impact on countries so heavily dependent on the core European banks. Dozens of subsidiaries, systemic in the respective markets, are at risk, as are the remarkable achievements of two decades of democratic and market transition.

The manifesto calls for “resilient cross-border finance”. It is absolutely critical for emerging markets that we not give up on the ambition to strengthen the institutional framework to support cross-border banking. The problem is that – now as well as in 2008-2009 – banks have been allowed to span national borders without a corresponding system of regulation, supervision and, most importantly, crisis management and resolution. Talks about premature moves to new models of banking, based solely on local funding, threaten the growth in emerging markets, particularly in Emerging Europe where cross-border bank flows have been an important and stable channel of capital from rich to poor countries.

The preoccupation of the Eurozone with itself and the pressures on the European banks are also a threat to the economic and political transformations in North Africa and the Middle East. The European anchor was absolutely critical to the countries of Central and Eastern Europe when they threw off the shackles of central planning and authoritarian regimes two decades ago. “Back to Europe” became a unifying vision for national aspirations. Today, we must as Europeans pull ourselves out of our current self-absorption and offer meaningful paths towards closer integration with Europe for the countries of the Arab uprisings.

In the long term we need yet another transition – to a low-carbon economy. Leaders in government, business and civil society from around the globe must unite around this mission. To be successful, we must address both the legacy of past CO2 and rising current emissions. Ironically, the countries of Emerging Europe, particularly the new EU members, have made more progress on this path than any other region in the world, but the inefficiencies of the past still plague them, most strikingly in the countries of the former Soviet Union. For these countries as well as for the world as a whole, carbon markets are absolutely critical to success. As we work on building the institutions supporting these markets, we must also mobilize finance for green investments and apply it in new and clever ways to avoid being stuck in distorting and unsustainable subsidies. Emerging markets in particular need to make efforts to jump on the bandwagon of “green growth” so as not to be left behind. Leaders must ensure that new divides do not open up in the pursuit of this technological revolution.

Erik Berglof, Chief Economist at the European Bank for Reconstruction and Development

Pictured: Traders at work in front of the DAX board at the Frankfurt stock exchange. REUTERS/Remote/Kirill Iordansky