This is a question that has been posed by many international analysts following the recent turmoil in the financial markets. Last Sunday this same question was asked to Mario Monti, former EU Commissioner and now president of the University of Bocconi of Milan. His answer was not a definite yes or no, but he explained that in his opinion, although the world economy needs to allow the market to operate, it must also have adequate regulatory institutions to safeguard us all from excesses.

He gave the example of Italy, which requires a larger dose of market economics than at present, but also mentioned the US, which requires a stronger dose of control and regulation.

It is obviously a question that cannot be answered in a few words and requires more and more thinking. It looks like an academic question, but, in fact, it is not as it is about the way the economy should be managed and therefore affects our everyday lives.

Students of economics would tell you that there are three traditional forms of economies - the centrally planned economy, the mixed economy and the free market economy. We had always associated the centrally planned economy with the communist system that collapsed in the late 1980s and early 1990s. In fact, although there are still communist forms of government around the world, I do not think that there are any centrally planned economies anymore.

This has meant that we lost a counter balance to free market capitalism, which was proclaimed to be the only way an economy should be run. Again referring to the study of economic theory, it was stated that the price mechanism, if allowed to operate on its own, would always find an equilibrium at some point or other in the market. State intervention in the economy has been looked at for the last 20 years as something that is intrinsically wrong, even if it was meant to achieve a fairer distribution of income.

The survival of the fittest became the rule by which all economic operators were expected to operate. For example, within the EU, rules against state aid were introduced to make sure that the government does not support any business that could not survive the pressures of the market.

Thus, for the last two decades, we had a choice between a mixed economy and a free market economy, with an ever-increasing tendency to have less of a mixed economy (by having less state intervention) and to have more of a free market economy, as reflected in the word capitalism.

We are now wondering whether this shift has in effect been beneficial or not, and whether we are experiencing the traditional dialectic of thesis, antithesis and synthesis.

It is also interesting to note what British Prime Minister Gordon Brown had to say about the current situation. He expects that just as combating terrorism requires the contribution of all, so does addressing the international financial crisis.

Giulio Tremonti, the Italian minister for the economy, attributes the current international situation to the fast pace with which the globalisation process took place. His claim is that as production facilities have shifted towards China, the only way the US economy could sustain itself was by purchasing whatever was being produced in China and the banks have funded this spending spree.

To this one has to add the bailout that has been decided upon by the US government. It first bailed out the two institutions that were mostly involved in house loans, Freddie Mac and Fannie Mae. This was not enough and the US government had to fork out €54 billion to save AIG (so much for state aid and free market capitalism!). Last weekend it proposed to the Senate the approval of a €476 billion package to continue supporting the financial sector.

A legitimate question that people ask is why has all this happened. On this one, there is general agreement that it was essentially a matter of greed. A number of institutions were more keen to make a quick buck through the sale and purchase of commercial paper than through other more sober banking activities.

Executives in these institutions were paid hefty bonuses for the profits generated, and the recipe for the disaster that we are experiencing today had been prepared. What has happened is what students of economics would describe as market failure. Somehow greed was expected to be controlled by free market economics. It was not.

So what is next? It is indeed very difficult to say what is next. However, my guess (and the choice of word is intended) is that the EU will emerge as the strongest economic grouping from all this. The EU has never really espoused the form of capitalism that was more prevalent in the US. Within the EU, it has always been generally believed that stronger regulation by the state is required as the market cannot really regulate itself. Within the current context, the EU is best placed to achieve the right mix in the economy between the state and the private sector.