41st World Economic Forum
Davos, January 27, 2011
2011/RISKS/SOVEREIGN DEBTS/MONETARY AND FINANCIAL
THE PRESIDENT – We identify three major risks for 2011, even though we’re much more optimistic. The first risk concerns sovereign debts. We’ve got to reduce the deficits and carry out the reforms. The world can’t go on accumulating colossal debt without worrying about the imbalances this creates, and I’ll come back to this if you have questions to ask me.
The second risk concerns the monetary and financial imbalances which have increased fivefold these past few years and which, one day, will be have to be paid for one way or another if we don’t keep a very close eye on them. Put simply, the economic powers’ circumstances have changed considerably and the international monetary system continues as though it didn’t need to adapt to a new economic reality. In actual fact, since 1971 we’ve been living without an international monetary system. Is this good for business leaders? Is it good for growth? Is it not a risk? France thinks it is, and we’ll discuss this.
Finally, the third subject on which, of course, I want to make myself clear: the risks, for inflation and growth, of an explosion in commodity prices, the extreme volatility of commodity prices. As early as a year ago, we saw oil go from $140 to $40 a barrel in six months. And it’s in no one’s interest to see hunger riots in the world again because the poorest people won’t be able to feed themselves. And it isn’t even in the interest of the countries producing commodities, be they agricultural commodities or fossil fuels. (…)
Q. – In this room, there are certainly some people – as we saw in yesterday’s discussions – who have doubts about the euro’s long-term survival. What would be your reply to these people with these doubts? And perhaps a second question: what could the euro’s role be in a reformed monetary system, as you wish to see?
THE PRESIDENT – I know that some people have doubts about the euro’s long-term survival. It was even being written about in all the newspapers a few weeks or months ago. There are no more articles; the euro is still here. A few months ago I was reading the headlines “euro is dead”, “euro is doomed” and “euro won’t survive”. That’s what I was reading. The euro is still there. Moreover, I’d like to tell you something very simple: Mrs Merkel and I will never – you hear me, never – drop the euro. Never.
And for those people who perhaps know Europe less well than its members, you have to understand something: the euro is Europe and Europe is 60 years of peace on our continent, so we’ll never let the euro be destroyed. We’ll never give it up it. And in this “never”, I’ll tell you one thing, I include our German friends as much as the French. Because we, French and Germans, have experienced three terrifying violent, barbaric clashes. This wasn’t in the Middle Ages, it was yesterday. And Europe has become the most stable, peaceful continent because we built the European Union – we and our predecessors. And the finest, most symbolic achievement is what 17 countries have created for themselves: the same currency. To think about giving it up would be to understand nothing about the psychology of Europeans who for centuries waged war against each other and [now] want peace. So for us the euro isn’t simply a monetary issue, it isn’t simply an economic one: it’s about identity.
So, to those people who’d like to bet against the euro, [I say] be careful with your money, because we’re totally committed to defending the euro in the long term. (…)
I’d like to reassure those people worrying about this: France isn’t challenging the market, because, here too, you read about things which amaze you. What is the market? It’s the balance between supply and demand, governed by rules. A market without rules isn’t a market. Too many rules kill the market, but a total lack of rules means no rule of law and no market economy. (…)
When the Russians and Ukrainians, confronted with huge fires and drought, decided to stop their cereal exports to the Maghreb – which they were perfectly entitled to do – no agricultural organization was able to make an assessment of cereal stocks. The shortage, plus the lack of transparency and thus speculation, led to a 66% increase in cereal prices in a few weeks. (…)
Do we need regulation or not? I was, along with Gordon Brown – who I want to pay tribute to – one of those people who told the oil producing countries that it was unreasonable to have a barrel at $140, that this called into question the sustainability of fossil fuels, making all other types of energy and research into them more cost-effective, in the same way that it was unreasonable to have a barrel of oil at $40.
Regulation - not too many rules, but regulation. We have to introduce transparency. Let anyone buying large quantities of commodities commit to putting on deposit part of the financing for those commodities and let the organizations make an assessment of the stocks available. (…)
Do we need banks to make the economy go round? Yes, it’s obvious. Do we remember what happened? Everything was going well, the prospects were outstanding, and then one day the incredible happened. Have we forgotten already? One of the big American banks went bankrupt. (…)
What did we decide at the G20? That from now on there mustn’t be a single institution without honest regulation. That doesn’t prevent flexibility. (…)
One of the goals I’m seeking to achieve with the G20 Presidency is to assess the commitments of the different parties – including in Europe, not just outside – to ensure we haven’t made fine commitments but failed to stick to them. We must [stick to them]. It is – and I’m going to use a word that may be a little strong – a moral issue. There’s no market economy without a minimum amount of morality, just as there are no markets without a minimum number of rules. That’s the path we’re going to try and stick to. I think it’s a wise one.
Q. – (…) The question I’d like to ask you is this : to what extent can the financial community and institutions cooperate with the political decision-makers on this task?
THE PRESIDENT – In answer to your question, I’d like to give you two examples. Rather than an ideological battle over who earns too much and who spends too much, Christine Lagarde and I have a very specific aim: namely, to agree on imbalance indicators, because I’m not too keen on people generalizing about imbalances. If you over-generalize you get into ideology, and I think we should stick with pragmatism.
What are the relevant indicators of global imbalances? Are they the balance of payments? Are they budgets? There are several possible criteria. Our aim from February onwards – and it’s very difficult – is to seek agreement among the G20 countries on a raft of relevant indicators.
Personally, I didn’t entirely agree with the Seoul line. They were beginning to say: “When your surplus is more than 4% you must be criticized and put things right.” I don’t think that it comes down to maths or that things work that way. So we’re going to agree on indicators; that’s the first thing and it’s a very difficult task.
The second thing is this: once you’ve agreed on the imbalance indicators, who enforces them, who calculates them and who oversees their implementation? From the French Presidency’s point of view, I’m sticking my neck out: there’s only one relevant international organization to apply these criteria, namely the IMF. Let me add – and it’s a fortunate coincidence – that the G20 is 20 countries plus five invitees. Leaving Spain aside, the other four can rotate. The IMF is 24 countries, very often the same ones [as in the G20], within the executive body.
I think it would be a good idea to rethink the IMF’s statutes and turn it into the world body in charge of macro-economic financial coordination and applying imbalance criteria. It strikes me that the IMF fulfils its role better by doing this job than by looking at the wage policies of one of the world’s three poorest countries, a country which will in no way call into question the global financial balance. Clearly, I think we must change and broaden the IMF’s role in fighting imbalances.
There are two aims: defining the criteria and applying them through a change in the IMF’s role.
FINANCIAL TRANSACTION TAX/INNOVATIVE FINANCING
Q. – (…) Do you think public-private partnerships are something complementary to your vision of the financial transaction tax, something which might replace this tax if it doesn’t get off the ground?
THE PRESIDENT – Thank you. It’s doubtless one of the subjects where there’s least agreement within the G20 and yet where the evidence should lead us to consensus. Let me explain. In Copenhagen, the big countries of the world decided to pay the poorest countries $120 billion per year from 2020 onwards. $120 billion per year. As all our budgets have deficits, nobody would imagine this money can come from States’ budgets. (…)
Several forms of innovative financing are possible. I remain committed to an infinitesimal tax on financial transactions, but other systems are possible. I’ll propose it to the G20. I know a number of our friends and colleagues are against it – that’s their right – so I’ll propose that a small group of pioneer countries be created to put this financing in place and keep our promises. I have no doubt that other countries will follow a few years later, because, as you know, Africa in particular is watching us, and Africa can tell the difference between grandiloquent speeches and decisions. (…)
I say this here in Davos because I think I’m dealing with intelligent people who think about things and who understand that this can’t last, and the vision I’m appealing for isn’t only looking at what’s going to happen tomorrow morning or in the next stock exchange prices: it’s looking 20, 30 years ahead, to a world that’s changing completely, a world where information circulates at the speed of light and which will no longer tolerate these kinds of injustices. (…)
It’s also my duty – the duty of the France that holds the G20 and G8 Presidency – to talk about these issues. I’m well aware that, as soon as I talk about innovative financing, all those who are against taxes – and I understand them, I’m not in favour of taxes myself – stand up and say: “Us? Never!” Perfect. Fine. But you live in the same world as us. And this extreme imbalance will undermine not only growth but also the future of your societies. (…)./.