As the Financial Crisis Eases, Global Leaders Are Leaving Unity Behind

As the financial crisis hit full swing just a year-and-a-half ago, major world governments pulled together to try to orchestrate a global response. "Only coordinated action by central banks and governments is able to stop the systemic risk and ensure the financing of economies," French President Nicolas Sarkozy said at the time.

Critics scoffed at the notion that the world's policy chiefs -- who they saw as bumbling bureaucrats whose lax oversight and supply of easy credit helped fuel the crisis in the first place -- could unite effectively to quickly put out the blaze.

But unite they did. And, with the world economy normalizing sooner than most had expected, even widely mocked administrators like U.S. Treasury Secretary Timothy Geithner are now being pointed to as unsung heroes.

'In My View, That Is Protectionism'

However, as the panic subsides, the brief solidarity it brought about is quickly dissolving. Mutual accusations of protectionism, for example, are becoming the order of the day again. Now that expanding their economies through exports is becoming a top priority, once-chummy national regulators are hammering each other in hopes of getting an advantage.

On Sunday, Chinese Premier Wen Jiabao (pictured) became the latest state official to take the offensive. "What I don't understand is depreciating one's own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports," Wen said at a press conference marking the end of Beijing's annual government hearings. "In my view, that is protectionism."

China has been under intense and growing pressure to let its currency appreciate. The yuan's most recent peg to the U.S. dollar at an exchange rate of about 6.83 keeps the currency artificially undervalued and gives the country an unfair advantage in exports by making its goods cheaper, critics say.

The heated Chinese response comes a month ahead of a U.S. Treasury Department deadline to decide whether to officially label China as a currency manipulator, which could set the stage for trade sanctions against the country.

'Alarm in the City of London'

Other major world economies, including the U.S., U.K., Germany and France are already part of a rapidly swirling bout of protectionist accusations. Some European heads of state, led by German Chancellor Angela Merkel, have been increasingly critical of the role hedge funds play in financial markets, and Greece recently banned hedge funds from a recent bond issuance despite badly needing credit at lower rates.

Last week, Geithner sent a blunt letter to European internal market commissioner Michel Barnier saying that measures the European Union was mulling to clamp down on freewheeling pools of capital like hedge funds and private equity funds smacked of protectionism.

But the financial services industry has been a key and fast-growing component of the U.S. economy. And the EU proposal has also "caused alarm in the City of London, where some in the industry say it is a thinly veiled attempt by France and Germany to undermine the U.K.'s dominance of financial services," according to the Financial Times.

'Setting the Wrong Example'

Europe is wielding its own accusations of protectionism against the U.S. The charges follow the U.S. Air Force's abrupt change in criteria for contracts that swung to Boeing's (BA) favor and led European competitor Airbus to drop out of the bidding for the lucrative airborne fuel tanker contract.

"If [the U.S.] wants to be spearheading the fight against protectionism, they shouldn't be setting the wrong example of protectionism," Sarkozy recently said.

With China now joining the fray, the lofty rhetoric and moralizing are likely to only grow in the coming months. Speculation of trade wars, if things spiral out of control, could also rise. But investors should also recognize the political posturing for what it is before getting too rattled. As the world's economies gets back to business as usual, so are its politicians.