As Prepared for Delivery
My compliments to our French hosts for their gracious and efficient management of these meetings.
We face a world economy still healing from the crisis of 2008 and 2009, damaged by the shocks to growth of the past year, and threatened by the ongoing crisis in Europe.
In the United States, economic growth slowed sharply this winter and spring, as it did around the world, as a result of the rise in oil prices and the disaster in Japan. Consumer and business confidence eroded further over the course of the summer, in part because of the debt limit debate in the Congress and the broader concern about political paralysis in Washington. The crisis in Europe has added significantly to these pressures.
The available evidence suggests the U.S. economy is still expanding, with the pace of growth somewhat stronger than during the first half of the year. But the overall pace of economic growth is not strong enough.
For these reasons, we have proposed in the United States a very substantial package of actions to strengthen growth and job creation, tied to reforms that would reduce our fiscal deficits to a sustainable position over the medium term. Although most of the attention in the world now is focused on Europe, I want to emphasize that we are working hard in the United States to repair the damage caused by our crisis, to reform the financial system, and to strengthen the fundamentals for future economic growth.
I would like to make a few points about the global challenges ahead.
First, on Europe.
We heard encouraging things from our European colleagues in Paris about a new comprehensive plan to deal with the crisis on the continent.
The elements of this plan include a much more substantial financial firewall to ensure that the governments of Europe can borrow at sustainable interest rates as they reform, a broad recapitalization of banks, further support for a sustainable program in Greece, and steps toward fiscal union. This plan would complement the more aggressive actions recently put in place by the ECB. The plan has the right elements, and its credibility is improved by the strategy adopted by the governments of France and Belgium to limit the potential collateral damage that could have accompanied the failure of Dexia.
The leaders of Germany and France have committed publicly to put this framework in place over the next two weeks, before the G-20 leaders convene in Cannes. They clearly have more work to do on the strategy and the details, but when France and Germany agree on a plan together and decide to act, big things are possible.
The members of the G-20 have a strong interest in supporting Europe, and we will continue to do so through the IMF. The IMF has a substantial arsenal of financial resources, and we would support further use of those existing resources to supplement a comprehensive, well-designed European strategy alongside a more substantial commitment of European resources.
Second, even with a successful European effort to contain the crisis, the damage already done to global economic growth requires a recalibration of economic policy across the world.
This is already happening in many countries, and more policy actions will come. Underlying inflation pressures are moderating in most of the world’s major economies, providing more room for policy to support economic growth. With the outlook for economic growth now weaker, and in view of the risks still ahead, the prudent course is for governments and central banks to adjust strategy now.
A successful global response would be strengthened by more progress toward domestic demand led growth in the major emerging market economies and a more rapid pace of exchange rate appreciation by China.
Third, we need to continue to move ahead with reforms to improve the resilience of the global financial system. We have made a lot of progress in designing a much stronger set of protections and safeguards – tougher capital, liquidity and margin requirements, and oversight of derivative markets.
As we put this framework in place, we have to be careful that we phase in the new requirements at a pace that recognizes the ongoing challenges to economic growth. And before these reforms are fully implemented we need to have more confidence that they will in fact provide a level playing field around the world.
Finally, on the trade front, we plan to build on the recent passage in the United States of trade agreements with Korea, Panama, and Colombia, and move ahead with innovative approaches to expand global trade and strengthen international protections against unfair trade practices. We are well along the way in building the Trans Pacific Partnership, which offers the prospects of substantial growth in U.S. exports to the most rapidly growing parts of the world.
We have more work to do in the days before Cannes.
A central lesson of financial crises is that success requires the commitment of financial force greater than the foreseeable magnitude of financial pressures. Financial support not as a substitute for reforms, but to make reform possible over a sustained period of time. No strategy can be effective unless it first eliminates the threat of catastrophic financial failure. In financial crises, it is more risky to act gradually and incrementally than to act with bold force.
Thank you.