Transcript of the Prime Minister’s statement on the World Leaders’ summit (G20 Summit): Financial markets and the world economy, to the House of Commons , 17 November 2008.
First Mr Speaker, I am sure the whole house will join me in sending our profound condolences to the family and friends of the three servicemen killed in Afghanistan in the past week.
They were:
- Marines Neil Dunstan and Robert Mckibben from the UK landing force command support group.
- And Colour Sergeant Dura, of the 2nd Battalion of the Royal Gurkha rifles.
We owe them, and all those who have lost their lives in conflict, a huge debt of gratitude.
With permission Mr Speaker, I should like to make a statement on the Washington summit on financial markets and the world economy - the first ever G20 leaders’ summit - which I attended this weekend with my Rt hon friend the chancellor.
Mr Speaker, in just over six months the world has seen:
-A 40 per cent collapse in global share values,
-Global financial institutions write off losses pproaching one thousand billion dollars
-World oil prices peaking at nearly $150 dollars a barrel and then sinking 60%
And we’ve seen a fall in global expectations for growth in the world’s industrialised countries from 2.5 per cent in 2007 to below zero - with all the impact on families and businesses and worries about mortgages, jobs and family security in Britain and around the world.
And what has made this a full worldwide crisis is that in recent weeks a problem that started in America has extended to emerging markets and developing countries, some of whom are facing bankruptcy.
Mr Speaker, these unprecedented global events call for unprecedented global action.
And while the economic problems of the 1970s created the G5 and then the G7, it is right that for the first time leaders from developed, emerging and developing economies - responsible for 85 per cent of global GDP - met and agreed on the urgency of common and concerted, and where appropriate, coordinated actions to address the financial and economic crisis.
Mr Speaker, to put the long term challenge in context: in the next twenty years it is expected the world economy will double in size. And this will mean a doubling of opportunities for British business and new opportunities for British workers and families. But to make the transition to, and secure the benefits of, an open and inclusive globalisation we have to deal with three other consequences it brings:
-The need for restructuring of industries and services to reflect the new global division of labour, not least resulting from the rise of asia;
-Increased competition for resources as long term demand for oil, food and commodities from the newly emerging economies threatens to outstrip supply
-And - now that we have global flows of capital - the need to ensure a global framework for financial services as a precondition of prosperity and security.
As epitomised by the sub prime crisis that started in America, at the root of the banking crisis was a failure by banks to manage risk, to understand increasingly complex and opaque financial products and to make transparent a developing shadow banking system.
So in Washington we agreed, first, on fundamental reform of the way the financial system is supervised around the principles Britain has been promoting - of transparency and accountability, responsibility, better banking practice, integrity and international co-operation. Including:
-Establishing international colleges of regulators,
-Bringing transparency to tax havens by including them within the scope of the financial system
-Convergence of accounting standards,
-Reviewing executive compensation schemes that encourage excessive and irresponsible risk-taking.
-Disclosure of toxic assets
-And reform of credit-rating agencies.
We set a clear timetable, tasking our finance ministers to prepare immediate measures for implementation by march 31st and to report back on progress with the full action plan at the next meeting.
And the summit also agreed that recapitalising the banks was the right course of action - and the action taken in the UK to buy shares in banks has now been followed in every continent, and guarantees introduced to allow banks to raise the money needed to continue to support the real economy, as they must, through lending to businesses and families.
Second, we agreed that - against a background of deteriorating economic conditions worldwide - a broader policy response was needed immediately, based on closer macroeconomic cooperation.
Importantly, we made clear that within our commitment to fiscal sustainability this broad and international policy response needed to encompass both monetary and fiscal policy action.
Mr Speaker, while it is for independent central banks to make their own decisions, we recognised the importance of monetary policy to the restoration of growth.
And while some have contended that it was impossible to cut interest rates in Britain because of the fiscal position, in fact the bank has now, in two successive months, made two cuts worth in total 2 per cent; and the governor has stated clearly that there is scope for further action. a measure of the level of international co-operation that has already resulted is the extensive currency swaps put in place between central banks; and the co-ordinated cut in interest rates across Europe, Asia and America a few weeks ago.
On fiscal policy - crucially, and for the first time - our Washington statement agreed a broad and concerted international macroeconomic policy response.
First, that fiscal policy has an essential role to play alongside monetary policy in sustaining demand, with quick-acting measures to encourage a rapid impact with help for households and businesses.
Second, that the benefits of fiscal policy action will be greater for each country if all countries act in a concerted way.
Mr Speaker, this imperative is international. In recent days china, south Korea, Australia and Germany have joined other European countries including Spain and France in considering new fiscal stimulus packages. The European union has already said that the flexibility in the stability and growth pact to recognise exceptional and temporary conditions will be used. And president-elect Obama has already stated that a new fiscal stimulus package in the us is both necessary and urgent.
Most previously published forecasts assumed the absence of coordinated fiscal action. But the downturn can be shorter and less deep if Britain takes action and if that action is matched elsewhere.
Mr Speaker, it is of course for individual countries to make their own announcements, as we will in due course. The more coordinated the action the greater the benefit to each country will be. But I believe the emerging consensus across the world — from the IMF itself and from governments of left and right, and in developed and developing countries — is that we should, take rapid, coordinated and concerted action through the use of budgetary measures.
Mr Speaker, over the last year the central problem facing the global and the UK economies was inflation, driven by a sharp rise in international commodity prices, allied to a credit crunch - which left fewer options for governments.
This year the reality is sharp falls in commodity prices, while the credit crunch is leading to contractions in bank lending and in consumer demand. The risk, in this new environment, is not now stagflation but rather the impact of close to zero inflation.
So it makes sense for government to support interest rate cuts with fiscal action. And I believe that in addition to the announcements already made, we will see in the next few weeks many countries following with expansionary measures founded on this agreed international position.
The third central message of the summit is that, in taking action we must resist all forms of protectionism. These threaten to slow down and eventually stall world trade and thus deny us the benefits of one of the great engines of new growth. So, uniquely, all nations signed an agreement that over the next twelve months they will resist pressure and refrain from raising new barriers to investment or trade.
The key to confidence in open trade is of course the signing of the Doha world trade agreement, on which talks have stalled since the summer.
Mr Speaker, we cannot allow this impasse to continue. I welcome today’s new agreement following Saturday’s summit to work towards a ministerial meeting in December. To ensure the trade round truly is a development round, which benefits the poorest countries, it will be accompanied by an agreed $4 billion dollar aid for trade programme to invest in the infrastructure of developing countries. In discussing issues facing poorer countries the summit reaffirmed the importance of meeting the millennium development goals; and - even amid the necessity of dealing with the financial crisis - the importance of applying the same common purpose to the challenge of meeting these goals.
Some have argued that as long as the trade talks remain deadlocked on specific issues no deal can be agreed. But the G20 was explicit about the action we have to take: for the first time we have instructed our trade ministers to agree, by the end of the year, the outlines needed for a successful conclusion to the Doha trade round.
Finally, Mr Speaker, the G20 leaders have also agreed that the next summit will allow us to review, and to make decisions on, the wholesale reform of the international economic architecture built in 1945 - but no longer adequate for the challenges of 2008. In agreeing the need to reform our international financial institutions to meet the challenges of the global age, we also set down agreed changes that we believe are essential to effective reform including:
- A greater voice and representation for the emerging and developing countries
-An urgent expansion, with a broader membership, of the financial stability forum
-And better identification of vulnerabilities and anticipation of potential stresses, with swifter action in crisis response
- all to be delivered by the expanded financial stability forum, in collaboration with the IMF.
The IMF’s ability to assist countries facing problems as a result of the current liquidity shock and the contraction of international capital flows depends on its reserves of 250 billions. And we welcomed the announcement from Japan to lend up to $100 billion dollars from their reserves as an interim measure. But that may not be enough. And we agreed to review the IMF’s facilities to ensure they have the flexibility to give countries the help they need.
And the world bank agreed they will make new commitments of up to $100bn over the next three years to protect the poorest and most vulnerable countries, as well as $30bn of new facilities, with contributions from other donors, specifically to help address problems faced by the private sector as a result of the crisis, including recapitalising banks and providing trade finance.
Mr Speaker, at this unique moment in our economic history, we are seeing the world come together to find global solutions for the global problems we face.
Over the next few weeks, following consultation, Britain - as the incoming chair of the G20 finance ministers - will lead the preparations for the next summit working alongside the past and future chairs. We will set out the schedule of events, meetings and papers that will take us to the next conference - the date and venue of which will be announced next week.
In the run up to the conference, we will monitor - following the recapitalisation of the banking system - barriers to the resumption of funding.
For this summit and the meetings that will follow are about the real challenges of everyday life: the need for people to have confidence in the banks that hold their savings and their mortgages and that everything is possible is being done to help them in their jobs - and we pledge that with national and international action, real help in difficult times - we will take people through the downturn fairly and I commend this statement to the house.
End.
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