Vice President Rehn at the Research Seminar on G 20,EU Institute for Security Studies
Ladies and Gentlemen,
Thank you for your kind invitation to address such a distinguished audience. In my intervention, I will focus on the main achievements of the G20 summit in Cannes, where we started the meeting not just in stormy and rainy weather, but also in a rather stormy mood.
In Cannes, much attention was paid and time spent on the euro area. We received strong support and plenty of advice from our global partners. The G20 welcomed the decisions taken by European leaders on 26 October 2011 to restore debt sustainability in Greece, strengthen European banks, build firewalls to avoid contagion and lay down the foundations for robust economic governance in the euro area.
Having put in place a comprehensive package for the euro area, we expected that in Cannes we could present our strategy to our G20 partners, and thus let the meeting focus on the G20 agenda and how we can restore the global growth and strengthen the global economy. This, however, was basically wiped out by the Greek Prime Minister Papandreou's announcement to hold a referendum. The announcement created much uncertainty about the commitment of the Greek government to the deal it had itself accepted in the euro area summit just a couple of days earlier.
We passed a clear message to Greece: we remain fully committed to support Greece and stand by the decisions we took in the euro summit. At the same time, Greece needs to demonstrate commitment to the decisions it has itself subscribed to. We have called for a national unity government and remain persuaded that it is the convincing way of restoring confidence and meeting the commitments.
In the margins of the G20 summit we also discussed the situation in Italy, due to the recent record high reached by its spreads. On 26 October the Italian Prime Minister presented to the euro area summit significant commitments to implement the planned fiscal consolidation and to enhance growth potential. This package, if fully implemented, is an important step to address Italy's structural problems.
In order to further demonstrate its determination to financial markets, Italy has decided to ask the IMF to monitor the implementation of its commitments. The European Commission will also go ahead with a detailed assessment and monitoring of the Italian situation. To make such an assessment we will send a mission to Italy already this week.
The third main topic of the Cannes summit was the commitment to ensure that the IMF has adequate resources to play its systemic role in the world economy. The G20 leaders stand ready to ensure that additional resources will be mobilised in a timely manner.
The G20 Leaders asked the Finance Ministers to work on deploying a range of various options, including bilateral contributions to the IMF, Special Drawing Rights (options such as pooling the existing SDRs and/or new SDR allocation), and voluntary contributions to an IMF special structure, such as an administered account.
This is an important commitment, and now we are working on concrete proposals and modalities to implement it. By these measures we can strengthen the global firewall against contagion.
Enhancing the IMF's resources is an important and in fact a necessary element of leveraging the EFSF, the European Financial Stability Facility. Therefore, it is important to take this work forward as soon as possible.
Ladies and Gentlemen,
These were the three main topics discussed at and in the margins of the Cannes summit. However, even if we did not devote a lot of time to discuss the extremely important topic of rebalancing of the global growth and restoring the confidence, we did reach important conclusions in this regard.
G20 agreed on an Action Plan for Growth and Jobs to address short term vulnerabilities and strengthen medium-term foundations for growth. The global economy has entered a new and difficult phase, which requires an increased attention and strengthened international policy cooperation. It is not only the euro area that needs to do its homework. Enhanced commitment and action is required from the main economic actors as well, especially the US and China.
We welcome the commitments taken by the US in Cannes to deliver on medium-term fiscal consolidation plan. However, there are dark clouds hanging over the US politics. The so-called Super Committee on Debt Reduction, which is tasked to find at least 1,2-1,5 trillion USD in debt reduction over ten years, is required to find an agreement by 23 November. It will not be easy to reach an agreement, quite the opposite. Nevertheless, an agreement is needed to avoid the automatic trigger of defence and non-defence spending cuts across the board from 2013.
As the global imbalances are widening again, China needs to do its part and implement the part of the deal that says "we affirm our commitment to move more rapidly toward market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying fundamentals". China also needs to change its growth model and increase the share of domestic consumption in its economy.
Financial sector reform is high on the G20 agenda, and rightly so. The lack of effective regulation and supervision is largely responsible for the excesses of financial markets that were the main cause of the financial crisis we have been suffering from.
The Cannes summit delivered a strong commitment to implement the commitments already made and to ensure a global level playing field, notably on the Basel III agreement on capital requirements. In fact, the European Commission was the first to move ahead in translating the Basel III commitments into law.
At the Summit, the G20 Leaders also agreed on a comprehensive set of measures to address the problem of "too-big-to-fail". The list of 29 initial Global-SIFIs (systematically important financial institutions) was published. These institutions will face specific elevated requirements by the end of 2012. Leaders also agreed to improve the capacity of the Financial Stability Board, and thanked Mario Draghi for his outstanding work. They welcomed the appointment of Mark Carney, Governor of the Central Bank of Canada as new FSB Chairman and Philipp Hildebrand, Chairman of the Swiss National Bank as new FSB Vice-Chairman.
Ladies and Gentlemen,
The current crisis will likely be seen as a watershed in global economic governance. Even before 2008, it was hardly conceivable that large advanced economies, or the G7 alone, could coordinate the policy response to a global recession. This is certainly not the case any more.
The G20 has taken its place and become the prime forum for international economic cooperation. Still we should not underestimate the importance of the G7. In the G7 we share common history, have long traditions of Euro-Atlantic economic and security cooperation, and profoundly shared values of fundamental freedoms and the rule of law. In fact, the G7 cooperation and regular meetings, often via teleconferences, have been instrumental at critical times of crisis.
Also other, more informal combinations of key policy-makers are significant. In Cannes, the leaders of the euro area G20 countries and EU institutions met among themselves and with President Barack Obama to discuss the euro area situation and restoring confidence in the global economy.
One of the main challenges of the G20 Presidency, or any presidency, is that a lot of preparatory work is focused on taking forward the previously agreed agenda. At the same time, Presidencies must be prepared and flexible enough to tackle the most acute crisis in hand, and adapt to the changed situation. In this regard, the French G20 Presidency scores points for flexible and creative but determined way it led and managed the Cannes summit.
In addition to the governments, it is of paramount important that also NGOs and the research community contribute to the work of the G20 and assist us finding global solutions to global problems. Therefore your seminar today is of utmost importance and can make a concrete contribution to our work in the G20. Let me wish you the best of success in your research efforts.
Thank you for your attention.