| Author: | Alistair Darling |
|---|
April 24, 2009
Let me start by thanking the Council of Foreign Relations for the opportunity to speak here today.
This morning, I would like to talk to you about the importance of countries coming together, to support our economies now during these difficult times, as well as preparing for recovery.
Finance ministers from the G7 and the G20 nations will meet later today, here in Washington.
At the London Summit, the G20 agreed a concerted and coordinated response to the global financial crisis – in order to speed up the recovery.
And already countries have started to take action to do that – here in the US, in the UK, in Europe and in Asia. But we need to do more if we are to meet the goals of the London agreement.
Our priority today must be to turn that agreement into action.
It is almost impossible to open a newspaper these days and not see a story about the current state of the global economy.
In Asia, export growth is falling sharply, in Japan alone by over 45 per cent in the last few months.
In Europe, industrial production is falling sharply.
Across the world, and in the UK too, I have always been clear that the last six months were going to be very difficult.
And I expected the first quarter of this year, in particular, to see a large contraction in the UK economy.
But we must also remember that there is huge uncertainty – at times like this, when large shocks hit economies everywhere, economic data becomes much harder to read.
So there is little doubt that the economic situation, across the world, here in America, and in Britain, has been both difficult and uncertain in the last few months.
Yet I think there are reasons to be confident about the economy.
Many people have seen parallels with what happened following the Wall Street crash of 1929.
Then, when the world economy was plunged into deep crisis in the early 1930s, the response was too little and too late.
Both nationally and internationally, a failure to act turned a serious downturn into a prolonged depression, that lasted for the best part of a decade.
Now we have seen decisive action in many countries, and set in motion forces which help the global economy come out of recession sooner.
And in the UK, the action already taken means that I expect the economy to start growing again towards the end of the year.
Much of this general help, for example to protect jobs, is essential to economies and should mean people get back into work quickly.
In Europe, for example, we have seen direct support for certain labour-intensive industries.
Here in the US, the new administration has been supporting the economy with increases in public spending in education, transport infrastructure and science.
And in the UK we have introduced a 13-month cut in sales tax, VAT, to boost spending and put money in people’s pockets. As well as cutting income tax for middle and modest income families.
This has now been complemented with further specific support, which I announced in my Budget on Wednesday.
It included measures to help homeowners in difficulty, help companies deal with cash flow problems, and make sure people spend as short a time as possible out of a job.
And I also took action to prepare our economy for the future – by encouraging businesses to invest, by supporting low-carbon projects, and by making sure the public finances remain sustainable.
That’s important. It’s right to support business and families now – as well as to prepare for the future – but as governments we need to do that while maintaining sound public finances.
On top of the fiscal support, central banks have cut interest rates aggressively and have started to use the full range of monetary policy instruments, including credit and quantitative easing.
This fiscal and monetary expansion to support global demand represents the largest stimulus of modern times.
Each country agreed in London to take whatever further action is necessary to restore global growth to over 2 per cent by the end of next year.
This action will, by the end of next year, amount to over $5 trillion.
We have been bold and aggressive because the risks of doing too little are far greater than the risk doing too much.
Or as John Maynard Keynes said, I’d rather be roughly right than precisely wrong.
To ensure that countries are held to account for their macroeconomic policies, the G20 has called on the IMF to assess the actions taken and the actions required to restore growth of over 2 per cent per year.
It is clear that, as well as taking action at home, every G20 country is determined to act together to restore growth, take steps to restore bank lending, and prepare for recovery.
Cleaning up the banks’ balance sheets is essential – because if we do not fix the banks, we will not fix the economy.
It is difficult. But it’s got to be done – it’s an essential precondition to recovery – and it needs to be done quickly.
We in the UK are providing that support, with massive liquidity provision, capital injections and by insuring banks’ assets.
Banks must clean up their balance sheets – it is the only way to get credit flowing again.
At the London Summit, we committed to take the necessary further action to restore the normal flow of credit thought the financial system, both domestically and globally.
To do this, and to maximize the effect of our policies, the G20 agreed a framework to repair and reform the financial system.
In the coming months, countries will need to ensure that new programmes adhere to this framework.
It is clear that the immediate cause of the crisis has been a failure in the financial sector.
In the UK, I will shortly be setting out our approach to renewing financial markets for the long-term, building on the G20 agreements.
We need to build trust in the banking system, and harness the strengths of the financial services sector for the benefit of society
Crucial to this is financial regulation and supervision – where there are many lessons to be learnt.
Across the G20 countries, domestic financial regulation must be reformed to promote integrity, guard against all types of risk, discourage excessive risk-taking, dampen rather than amplify financial shocks, and protect consumers and investors.
But we also need a more globally consistent regulatory system. And as part of this, we must:
Endorse and implement new tough principles on pay and compensation.
Expand regulatory oversight to all systemically important financial institutions, including hedge funds.
And take action to protect the world’s financial system and our public finances by cracking down on tax havens.
Again, the key to the delivery of the financial system will depend on international cooperation. And central to this will be the newly established Financial Stability Board – which brings together a wider group of developed and emerging economies.
We must also ensure that our other international financial institutions - the IMF, the World Bank and the multilateral development banks – not only have the funding they need, but are also effective, and responsive enough to manage this crisis and prevent future crises.
The G20 agreed future reforms and modernisation of their mandates, scope and governance to reflect the new challenges of globalisation and ensure their long-term relevance and legitimacy.
Emerging market and developing economies continue to be most at risk from the reversal of capital flows and the withdrawal of credit.
It is not only our moral imperative but also in our economic interest to provide support to these countries. These countries have been the engines of recent world growth and they are vital to a successful global recovery.
Support for these countries now will minimise the long-term damage to global potential.
The agreements we reached in London will ensure that the IMF has the firepower it needs to mitigate the spillovers to the emerging and developing economies.
Trebling the resources available to the IMF to $750billion, supporting a new SDR allocation of $250 billion and $100bn of additional lending from the multilateral development banks constitute an unprecedented response to the crisis.
In particular, we will ensure the delivery of $50 billion of support to low-income countries, including $6bn additional concessional and flexible finance through the sale of IMF gold and surplus income.
Growth in international trade has underpinned global prosperity for the last half century, but it is now falling for the first time in 25 years, exacerbated by the drying up of trade credit.
The G20 committed to support world trade and reject protectionism and to tackle the shortfall in trade credit by providing $250 billion of support for trade finance through our export credit and investment agencies and the multilateral development banks.
We extended the pledge not to raise new barriers to investment or trade in goods and services, impose export restrictions or implement WTO inconsistent measures.
Such commitments are in stark contrast to the tariff wars of the 1930s and demonstrate our strong international cooperation through the G20 and our resolve to avoid the mistakes of the past.
Each individual G20 country must put the commitments into practice. Our actions are now what count.
There are no quick fixes. But because of the progress we have made, both domestically and globally, we can begin to restore confidence, save jobs and bring the world economy out of recession.
Implementation is now our priority. We must all look for real progress to have been made – and to be made urgently. We don’t have any time to lose.
Thank you.
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