The IMF has changed course and legitimated capital controls (under certain circumstances). Former IMF chief economist Simon Johnson (among others) bemoans Greece’s inability to devalue its currency (given that it is locked into the Euro) in light of its balance of payments difficulties:

“If Greece still had its own currency, everything would be easier. Just as in the case of the United Kingdom since 2008, the Greek exchange rate would depreciate sharply. This would lower the cost of labor, restoring competitiveness (as in Asia after 1997-98) while also inflating asset prices and thereby helping borrowers who are underwater on their mortgages and other debts.

But, with Greece and other troubled euro-zone economies (known to their detractors as the PIIGS: Portugal, Ireland, Italy, Greece, and Spain) having surrendered monetary policy to the European Central Bank (ECB) in Frankfurt, their currencies cannot fall in this fashion. So Greece – and arguably the PIIGS more generally – are left with the need to curtail demand massively, lower wages, and reduce the public-sector workforce. The last time we saw this kind of precipitate fiscal austerity – when countries were tied to the gold standard – it contributed directly to the onset of the Great Depression in the 1930’s.”

Countries around the world are responding to the financial crisis by (to the best of their variable ability) favoring domestic industries and abandoning free trade commitments. And the Lisbon Treaty, the latest contribution to the shape and form of the European Union, has, for the first time, added a withdrawal clause — a way to leave the EU. Before, there was no institutionalized opt-out. Oh, and let’s not forget that China’s rise to world power has been accompanied by consistent insistence on the sacrosanct nature of sovereignty. Is this a random assortment of observations?

What if sovereignty is the best international organizing principle we can hope for? The concept itself has evolved, its trappings have varied. But despite that evolution it has proven itself remarkably durable. Despite all the international and transnational institutional innovations we’ve manufactured in the past century or so, and despite all the outbursts of hegemonic pretense, sovereignty keeps coming back. I don’t want to sound like a dull realist saying its all about power balancing in the end. No, sovereignty is an IDEA. An idea that carries a lot of weight, a lot of gravity. And yes, there is a balancing element to it, but not just balance of material power but assertion of distinctiveness, separateness. It is a very compelling idea. Are we stuck with it? Just throwing out some random and maybe obvious thoughts while the other ducks are busy at ISA…