Transcript of press conference given by the Prime Minister, Mr Gordon Brown, and Chancellor of the Exchequer, Mr Alistair Darling, in Washington, on Saturday 15 November 2008.
Prime Minister:
Thank you very much for joining us. We have agreed here in Washington a route map to help global economic recovery and it is based on four key elements.
First, action is already being taken to stimulate economic growth in a number of countries, but we are agreed that we must do more. So we have agreed, and I quote from the communiqué: “against the background of deteriorating economic conditions worldwide a broader policy response is required based on closer macro-economic cooperation”. Coordinated action is already being taken to reduce interest rates. We recognise the importance of monetary policy support as [indistinct] domestic conditions. But I think you will all find interesting that on fiscal policy we have agreed to use fiscal measures to stimulate domestic demand for rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability. In other words a coordinated and concerted stimulus through the use of budget measures to support demand in our economies. It is of course for individual countries to make their own announcements, but I believe we will see many countries following this lead in the next few weeks.
Secondly, we are agreed on the need for major reform of the international financial system and it is necessary to give confidence that we are cleaning up the system, based on the principles of transparency and accountability, better regulation, integrity and international cooperation. We will consider the detailed proposals in detail at our next meeting before the end of April. This includes proposals to establish colleges of regulators, improved accounting standards, better disclosure of toxic assets and reform of the credit rating agencies.
The third agreement is on the need to reform the international financial institutions for the future, what some term the world’s economic governance. These institutions such as the International Monetary Fund and the World Bank have served us well but now need both the reform and the resources to equip them for the 21st century. In particular we have agreed to ensure they have sufficient resources to continue playing their role in overcoming the crisis, and I am pleased that Japan has already announced an extra $100 billion. Other countries will follow in the next few days.
We are also agreed on the importance of rejecting protectionism, and this was a very big theme of the meeting, and not turning inwards in times of financial uncertainty. To this end we will refrain from raising new barriers to investment or trade within the next 12 months. All countries have signed up to this. And more importantly we will instruct our Trade Ministers to agree the modalities of a world trade agreement by the end of the year. This is the first time that a meeting of leaders has instructed the trade negotiators, and I believe that we are determined now that we have an agreement within the next few weeks.
We have seen in recent months as the financial crisis of this global age has spread around the world that together we can make the transition to an open and inclusive form of globalisation. And let’s remember, whatever happens in the next year or two, if we take the right policy decisions the world economy will double in its size over the next 20 years and this will provide enormous opportunities for our businesses and our peoples in the years ahead.
But our [indistinct] today are necessary to make that transition to a global age where we can have prosperity, but also to meet the concerns of families and businesses in all our countries. And this is not about abstract language of communiqués, but about real issues that affect people’s daily lives, that by the action we can take savings are safe, people will be able to keep their jobs and they will not lose their homes in all of our countries.
These are extraordinary times, and they require extraordinary measures. And because this is a global problem, our actions must be global. I believe we have shown by our actions today that governments can and must provide leadership. We will do so in the days and months ahead, and we will meet again as an international grouping in the next few months. By that time a whole range of what has been commissioned today for the reform of the international financial system will be before all world leaders.
I am very pleased that the Chancellor is here and both of us are able to answer any questions.
Question:
Prime Minister are you predicting after your talks here that countries throughout the world will cut taxes and increase government spending in order to boost the global economy, and is that the message that you have for voters at home?
Prime Minister:
There is a clear determination on the part of world leaders in every continent to take the necessary action to move our economies out of this difficult period and that requires, because of the situation that we are in, the fiscal action that you are talking about. That means that different countries will announce, of course at different times, that - in a way that I believe will show the benefits of cooperation - that they will take action to inject resources into their economy. We of course will have to look at what we do, but other countries have said to me that they are looking at what they can do. Of course we have already had some announcements from China, and Korea. America has their fiscal stimulus, Germany announced something, Spain has announced what they are going to do, and many other countries beyond that. But I believe that you will see in the next few weeks significant further announcements by a number of countries. The case for coordinated and concerted action was put right across at the discussions of our meetings and I believe that world leaders are now convinced that we must take that action, and that action must be taken soon.
Question:
Prime Minister, for obvious reasons President-elect Obama didn’t participate in today’s discussions, but he did speak today talking about the need to … American jobs, while the Democrats are talking about bailing out the American car industry and opposing some world trade agreements. How convinced are you that the Obama administration will actually continue to follow this course? [Party political content]
Prime Minister:
Can I just answer the point about President-elect Obama. When we decided today to use fiscal measures to stimulate demand to …, and all countries signed up to this, it is very much … of what President-elect Obama has already said he intends to do. So I believe that the coordinated and concerted stimulus that people are talking about does include what is being proposed and about to be put to Senators in the Congress in the next few months by President-elect Obama. And I believe that is part of the growing consensus around the world in every continent. You have got a situation now where a year ago we had inflation, now we face the prospect of very low inflation indeed. Oil prices are coming down, food prices may also be coming down, many of the forecasts are of inflation being very low by the end of next year. And in these circumstances it is very important that we look at what we can actually do to stimulate the economy. And it is in these circumstances that the temporary fiscal stimuluses that we are talking about become even more relevant. And that is why I believe that other countries are now ready to follow this advice, and of course if we act together then the effects of what happens in one country will benefit also other countries, and vice versa. And so we will all benefit from the concerted nature of the action.
[Party political content]
Question:
Prime Minister, the world trade talks collapsed because of this spat between India and the US over Indian farmers. What was the reaction like around the negotiating table from emerging rising countries to this matter of trade?
Prime Minister:
Everybody is worried about the resort to protectionism. Everybody has seen in the past when there have been crises in the world economy that countries have been too ready to take protectionist measures of their own. And so round the table, from developing emerging markets and developed countries there is a determination that we will fight protectionism. Now one of the ways that we can signal that protectionism is unacceptable is by signing a world trade deal. I believe that the differences between India and America can be resolved, I believe that negotiations can actually lead to results very quickly, and that is why given that other people also believe that, the communiqué is quite explicit for the first time that we are instructing our Trade Ministers to reach an agreement by the end of the year.
Question:
Prime Minister the college of regulators, which is one of the things that you have put to this summit, the United States regulator was heavily criticised by both Presidential candidates. Your own regulator has admitted mistakes in the run-up to the crisis. How does a college of regulators, who have not particularly shown any particular competence during this crisis, make anything better? What concrete things can they do?
Chancellor:
There are two things here. Firstly, there is no doubt that in America, in the United Kingdom, in Europe, across the world that all supervisors and regulators need to learn from what has happened. People would expect that. But one of the lessons that is absolutely clear is that whereas in the past it might have been sufficient to have an adequate supervisory regime in each individual country, today, given the international nature, the global nature of financial institutions that isn’t adequate. And if you look at the immediate causes of what has happened over the last 18 months, this is a problem that started to build up in the securitisation market, was exacerbated by the problems in the sub-prime market here, but within a few weeks it had spread right across the globe. And the idea behind having colleges of regulators is to make sure that for the large systemically important institutions that you have regulators in all the major countries who know all about the institutions, and importantly the regulators know what is going on in different countries. Now that is one small part of where we need to tighten up and improve the regulatory system and that is extremely important if we are to make sure that this chain of events doesn’t happen again in the future. And actually Britain has played a leading role in establishing these regulatory colleges, as Callum McCarthy, the Chairman of the FSA has been a playing a leading role in starting them, but it is just one example of a whole series of changes that we agreed upon today.
Question:
Prime Minister, Chancellor, you essentially today have said you don’t want to give us a view on the pound. I think the markets will interpret this as at best indifferent, at worst as encouragement, and is this the right interpretation? And secondly, is it right that you want to coordinate really every aspect of the financial system around the world, except exchange rates?
Prime Minister:
Can I say we have never given a running commentary on the exchange rate and that would be a very unusual thing to do.
Chancellor:
Yes, Finance Ministers and banks, central banks, have maintained that position for some time. What is important in the light of so much uncertainty, and you know you have seen the volatility in markets over the last few weeks, is that each and every one of us makes sure that we do everything we can to support our economy, to make sure that we can help businesses, help people through what is undoubtedly an extremely difficult time. And the whole point of the discussions that have been taking place today and yesterday is that if countries act together they can achieve so much more than if they simply take action at home. And what was striking today around the table, the 20 countries in the G20 were absolutely united in saying that yes we need to do what is right at home, but it would be far more effective for the whole world if we act together.
Question:
I think President Sarkozy suggested that the follow-up summit might be held in London. I just wonder whether you thought that was a good idea, and if so what role you thought the UK could play in pushing forward the ideas that you have been discussing today?
Prime Minister:
There will be a follow up summit - that has been agreed. The agenda for that follow up summit will include the conclusion of the detailed reforms of the financial system, it will also include detailed work on the reform of the International Monetary Fund and all the international financial institutions. Britain, as Chairman of the G20, is going to lead the way with Brazil and South Korea in formulating the agenda for the meeting, that is the previous G20 President and the next G20 President, alongside Britain. But any announcement about the location will come within the next ten days.
Question:
Mr Brown you have spoken about reforming the international institutions to make it fair for emerging economies. Does this G20 arrangement now replace the G8 for leading the way on economic affairs?
Prime Minister:
The G8 is going to meet next year in Italy, and will continue to meet. And the G8 of course has the sessions with the five other leading economies, and sessions with the African countries. But I think it is important to recognise that when we are talking about the reform of the international system and also about monetary and fiscal action, it is important to include China and India from the Asian continent, as well as Japan, and it is important to include countries from Latin America as well as America, and that is why the G20 was seen as the right body for these decisions to be made at. And I think the response from countries who have been here today is that some people may have said it would not be possible to get an agreement with all the different range of countries present, but even moving beyond the G8 format, and including the whole range of countries who have never been at the G8 before, but are part of the G20, we have managed to get an agreed communiqué which as I say emphasises these four big points: the need for fiscal action to complement monetary action; the need for an end to protectionism and a world trade agreement; immediate reform of the financial system so that there is proper transparency and responsibility; and the long term reform of the international institutions. Now that is an agreement that perhaps people would have thought impossible a few months ago.
Question:
Prime Minister in terms of the root causes of the crisis, how much discussion was there of the US role as the place of origin for this crisis? And did President Bush accept that the US bears some sort of special responsibility for the circumstances that the world finds itself in?
Prime Minister:
I think we were interested in getting to the heart of where the problems had arisen, in what sectors of the economy. And I think you will see in Paragraph 3 of the conclusions: weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, consequently excessive leverage. All these combined to create vulnerabilities in the system. So I think there is a pretty clear analysis that these are the problems that we have been having to deal with, these are problems in the financial systems of many countries. We have now got to make major reforms and we will make these major reforms over the next few months. I think the need for transparency and including what you might call the shadow banking system in the supervision has been agreed. I think the responsibility of boards for the actions of their companies, and that people have got to be held to account, is also agreed. People are now clear that you cannot have credit rating agencies that are advisors as well as the rating agency, and executive remuneration has got to be based on the long terms interests of the company and not based simply on short term deals. So these are the problems that we have identified and we have already taken the measures that are necessary and are identified in the paper.
Question:
Chancellor can I ask you a question. The economy has already had substantial stimulus over recent months, it has had two points off interest rates, there have been tax reductions, we have allowed borrowing to increase, there has been a big fall in the oil price, a big depreciation. Why then, if the economy as you say is going to have a short sharp recession do we need unfunded tax cuts? If we do need them, doesn’t that suggest that the outlook for the economy is a hell of a lot bleaker than you are currently forecasting?
Chancellor:
I will be setting out my detailed forecast and assessment of the economy in the pre-budget report a week on Monday. But as I said a couple of weeks ago in a speech in London, that at a time like this when we along with every other developed economy in the world are facing pressures we simply haven’t seen in generations, this is the right time to support the economy. Now you are right, there are things that we have done as a government over the last period, the Bank of England has cut interest rates and we saw the largest single cut for many years very recently, but a week on Monday I will set out my forecast. As I said before, I believe that the British economy, which has had over ten years solid growth, goes into this period at a time when we have managed to reduce debt at the same time as we trebled public investment on spending, on services on which our country and people in our country depend. We go into this in a robust position. But we and I as the Chancellor and other Finance Ministers across the world will have to take a decision as to what we think is right. But I think you will find that there is a consensus, and I accept that you are not necessarily part of this, that there is a growing consensus, certainly amongst Finance Ministers, but the IMF and other commentators as well, that at a time like this when as I say the conditions we are facing are unprecedented certainly in recent times, that this is the time when we need to support our economy. But we must never forget that in saying that we also need to make sure that in the medium term we live within our means and that we can come back into balance. That is equally important. But at the present time I think people would expect governments, because it is only governments, to do whatever they can to get through what is going to be a difficult period.
Question:
Prime Minister you have been saying that we must build a new Bretton Woods. Do you consider this communiqué as the foundation for a new Bretton Woods, and if that is the case why is that there?
Prime Minister:
It is the road to the new Bretton Woods, we have agreed that we will look at detailed proposals when we come to our next meeting within the next few months. But if you look at the conclusions of the document, it is absolutely clear that we are trying to build new institutions for the future, it is also clear that we are going to reform the International Monetary Fund as we do so, the World Bank may also be reformed on the way to making better international institutions for the future. I think the important thing to realise is that the institutions built in 1945 are not necessarily best equipped to deal with the problems of 2008. We now have a global economy, global competition, global flows of capital, and the institutions we built in 1945 were built for the sheltered and protected economies of that time. We need to change the way our international institutions work if we are going to have proper crisis prevention, proper early warnings, proper surveillance of what is happening in different continents, and therefore the right decisions internationally based on greater global cooperation.
Question:
Prime Minister you started reading from paragraph 3, it goes on to criticise policy makers, regulators and supervisors. Do you feel after a decade at the Treasury that you bear any responsibility for what has happened?
Prime Minister:
The Financial Services Authority that we set up in 1997 is generally recognised to be a model for financial services regulation around the world. And we brought together all the different services, we brought them under one single regulator. Many countries have now followed what we have done. And the Financial Services Authority said that over Northern Rock it had made a mistake, the mistake was that it didn’t look at both liquidity and solvency in the way that it would now want to do. And I think this is a change that all regulators round the world are trying to recognise. As far as the policies since 1997, I think it was right also to set up the independent Bank of England and I don’t think there is anybody that now wants to change that system.
(End)
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