Transcript of the Press Conference given by the Prime Minister and the German Chancellor Angela Merkel at Downing Street, 14 March 2009.
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Prime Minister:
Good Morning. I have been very pleased to welcome Chancellor Merkel to Downing Street, but also that she was able to come to Britain yesterday evening and to stay at Chequers with her husband. We have had a long walk on the hills this morning to discuss all the great events of the day. She was subjected to a traditional English breakfast, which I hope she enjoyed, and it is a great pleasure to renew our friendship.
And I would like to thank Chancellor Merkel for her continued strong leadership and for her friendship to Britain. She is not only a personal friend of mine, she is a great friend of the United Kingdom and we welcome both your husband and you here today.
Both the United Kingdom and Germany have over the last week experienced tragic events and loss of human life in very tragic circumstances, and I want to extend again my condolences and those of the entire British people to Chancellor Merkel and to the whole of Germany for the shocking murders of school children that took place in Germany on Wednesday. These events I know shocked and appalled all people of Britain, and let me tell you today that the British people grieve with the German people.
The Chancellor and I were able to look ahead to next week’s European Council, and beyond that to the G20 Summit that is going to take place here in London on 2 April, both of which are key to the shared agenda that we have talked about of putting our economies back on a path towards growth, to creating jobs, to helping workers and businesses and families who we know are suffering to get through this global economic downturn. And by convening European leaders in Berlin two weeks ago, the Chancellor has already made a significant contribution with her leadership of this debate and the important decisions we have reached in Berlin that we announced on that day.
We are able to go further because of the discussions that we have had, and are being held right across Europe and indeed right across the world. We are committed to deliver the fiscal stimulus that has been agreed. Chancellor Merkel and I also agree that a central challenge for the summit will be to go to the root cause of the current crisis, and that is the need to reshape our banking and financial supervision and regulation across the world.
We have to address the fact that a bad bank in one country can undermine good banks in every country, and that multi billion dollar markets still exist outside the supervisory net. We know that strategies for diversifying ownership by spreading the risks ended up simply in spreading contagion and contamination across the world.
We have learned from this crisis that markets should be free, but they should not be values-free, and that markets need more and effective supervision. So we must act to reshape the regulatory system for the new times.
Greater international cooperation lies at the heart of all our changes. Financial institutions need to work across borders and also need to work under cross-border supervision. Regulation in one country must cooperate more closely with regulation in another country to create a global network of supervision that captures the risks that all of us face and are affected by.
And we will be setting forward proposals to reshape the Financial Stability Forum to meet the supervisory needs of these new times.
We have agreed that the way forward is for each country to supervise institutions, not according to what they say they do or what are called, but what they actually do. And so we must bring the shadow banking system, and that includes hedge funds, into the regulatory system.
This week Austria, Luxembourg, Belgium, have joined Switzerland, Hong Kong and Singapore and others in a worldwide agreement to exchange tax information on request and to subscribe to the OECD principles about the exchange of tax information.
This is a recognition I believe that the old tax havens and the regulatory havens have no place in this new world, and we now call on all countries to adopt international standards and to comply with them by signing bilateral agreements to exchange tax information with other countries.
Chancellor Merkel and I agree also that we should set down international principles for the workings of the economy in the future, and we should deal with the global problems, the risks that come to financial institutions through inappropriate and irresponsible rewards and bonuses that were based on short term performances. The world should be based on long term success and we agree not only that there should be national principles governing this, but also international principles too.
Now the Chancellor and I also talked about the importance of climate change and our determination to succeed in a Copenhagen agreement later this year, and our determination to put the low carbon economy and job creation through that on to the international agenda. An international agreement on climate change would be a major step forward in international cooperation and a process that was started by Angela Merkel a few years ago, we are determined will end with the successful agreement involving all the world at Copenhagen.
So we have had a productive set of discussions today, we have talked about all the international issues that affect the world. We are very much agreed on the priorities for the next European Council, and for the London Summit.
But on a personal note can I say how grateful we are that you managed to spend some time in Britain and you are welcome back any time.
Chancellor Merkel:
Thank you very much, and allow me to first of all thank you very warmly for the very gracious hospitality, thank you Gordon, thank your wife - Sarah. It was not only a very relaxed evening which allowed for a very intensive debate actually, we also had a wonderful stroll through this lovely English landscape. I grew up in the countryside so time and again this is something that I seek out to do when I go to foreign places. I just love looking at foreign landscapes. And actually the weather was quite gracious too. The sun came out and you can see the spring. It is far more visible here in the United Kingdom, at any rate far more visible than in northern Germany.
So thank you very much for this lovely time, but we did make good use of the time as well to discuss a number of very important issues and to prepare for the challenges ahead.
This year is going to be a crucial year which will show whether we are actually able as an international community to cooperate and to meet these challenges, or we are not, and the international financial crisis is calling for just that cooperation and I am very grateful to Gordon Brown and to the members of his staff and his government for the fact that they have prepared the meeting so carefully - the G20 meeting that is.
And in Washington we were sort of making our first steps in this direction, but now we have to come up with substantive results and I must say I am very positive, I am very optimistic that we will be able, looking at your state of preparation, that we will come to an agreement together with the United States with emerging economies such as China and India, and to come up with results that see to it that through new regulations, through new supervisory functions we ward off such a crisis in the future and we prevent them from occurring them again.
And part and parcel of that is that we have no judiciaries in the world, we have no places in the world, no players in the world that can in any way escape supervision and we see that this pressure to actually draw up a list of tax havens has already yielded positive results. We heard yesterday Lichtenstein, Switzerland, Austria and Luxembourg stepped forward and said that they were for more transparency. I think this is a very good step forward in the right direction and I trust that before London we will see similar steps by other countries to follow suit.
In the European Union and worldwide we have all of us put together our packages to bring about a stimulus not only to our economies but also to the global economy. And in general next week we shall have an opportunity during the European Council to look at the sum total of all of our assets.
And we think that the European Union actually gives a very important contribution through the contributions of its individual member states to this.
Gordon Brown already spoke about that and those who need help through the multilateral institutions will be given help, that is something I believe that we have already participated by the efforts we made within the European Union. Through the European facilities we have very much welcomed the … report, we will see to it that the conclusions drawn in the report will be implemented as quickly as possible as regards the regulatory part of it and that we return as quickly as possible to solid and sound public finances and fiscal policies after the crisis has been overcome.
So that it is very clear that obviously we want to be very serious in combating the fallout of the crisis, that we see to it that these large imbalances that we have in the world today are eradicated as best as possible.
We will also lay down the principles we agreed on in a charter, … that that too is going to be on the agenda of the G20 meeting.
We are decided to help the United Kingdom, to see to it that this conference becomes a success. We shall work very closely together in the next few days to come.
And we are just as resolved to see to it that the climate change talks will come to a successful conclusion by the end of this year. It is crucial I believe for us to work that we come to a post-Kyoto agreement. And as regards the financial crisis, as regards climate issues, that again is a very clear testament … that countries going it alone will not be able to field problems of this magnitude, but the United Kingdom and Germany will act together and give their contribution to it.
Question:
Prime Minister how difficult is it going to be to get 20 countries to agree on something? That is an awful lot of countries when you seem to be at odds, even with as close an ally as Germany, on the role of future fiscal stimulus. You mention for example that international regulation must … shadow banking, including hedge funds, but that is probably something that the Americans would not agree with for example. Chancellor Merkel, I wonder if I could ask you why you don’t think there should be - if you do think this - why you don’t think there should be further fiscal stimulus, what are the dangers of increasing fiscal stimulus?
Prime Minister:
You know one by one we are dealing with the central issues that confront the world economy and we are doing that together by working very closely together. I will just give you one example and then I will move on to the other issues you have raised. If you take this issue of tax havens, nobody could have thought a year ago, or even three months ago, that the world could come to an agreement that would outlaw the worst practices in these countries. Now we have got half a dozen countries, very big countries in the financial world, who are signing up to principles to exchange tax information. That for the first time has been demanded for 20, 30, 40 years and is now happening for the first time, and both of us are calling on all other countries who haven’t yet subscribed to these international principles to do so.
So that is a sign of the world working together, making progress, other countries now agreeing that they want to be part of this new financial system that is built on sound principles, and we will continue to do that.
We are also agreed on the need to regulate institutions outside the banking system in the past, and that includes hedge funds, it includes other shadow banking operations that have existed round the world. So we are getting agreement on that and I believe that the Americans - contrary to what you said - the Americans are ready to support us in these changes that we are going to bring about.
So you are going to see a massive change in the supervisory system, it is going to include tax and regulatory havens where it didn’t before, the scope of action is defined by what a company or an institution does, not what it says it does, and it if it is in any way in a banking operation then it is going to be regulated in such a way that we have confidence in its operation.
As far as the fiscal policy is concerned, every country you know has made a major contribution to fiscal stimulus. We have now got in the world the biggest fiscal stimulus the world has ever seen. And of course we will review this as we look at what we do at the G20, but I think you will find that countries will be agreeing together about what we are going to do in the future, both in fiscal and monetary policy and in the regulatory system. I believe that we are setting a path for the G20 where one by one we are reaching agreement on the big issues for the future.
Chancellor Merkel:
Germany has by now adopted a fiscal stimulus package to the tune of 4.2% of the GDP for 2009/2010, that means we are in the vanguard actually, in the top of group of countries in the European Union and this big fiscal stimulus package was actually adopted by us in parallel to the American package, and that is just two or three weeks ago. It is a very clear cut perspective for 2009/2010 but nothing has actually yet taken effect on the ground, it has taken a physiological effect because we adopted it, but there has not as yet, and could not be any sort of real impact. We will have tax cuts, for example in 2010 we have a … infrastructure package as of 2009, if we want to actually strengthen the effect of such packages you will simply have to implement them and not already talk about the next to come before the first one has actually taken effect.
So I think this was a gigantic step forward for us. I don’t think you necessarily can compare American figures to European figures because as regards the automatic stabilisers for example, as of 1 July we will have a big increase in pensions, we will have to transfer payments to people who will have lost their jobs by that time. So these are anti-cyclical measures in nature. Whereas in the United States for example the whole pension system, the whole unemployment system works far more pro-cyclical. So we have no credit card indebtedness to the same extent that the Americans have, we don’t have that sort of crisis in the …
Question:
So that means that we can start from the assumption then that during the G20 meeting we will not see any new stimulus package coming from Europe. What sort of result do you then expect, and how important is it going to be for the G20 to come up with concrete results, or will there be then time also to go forward in Italy?
Chancellor Merkel:
No, this summit meeting will yield concrete results and will also come out with very clear cut regulatory progress which is after all the starting point of our debate and this builds on the Washington action plan. We have had very clear cut signals from the United States that we can expect the Americans, they are taking a very constructive stance on all of that. I think these sort of contradictory positions that you read about in the press are not giving us a real picture. The United States of America don’t intend during the G20 summit meeting to adopt a further fiscal package, as others don’t do. I mean we do that at home, we talk to our parliamentarians about that. But what we need to talk about, our need to focus our views during that meeting is what sort of international impetus can we give? For example Germany, as the United Kingdom, has a facility with the World Bank in order to give impetus to such infractuture programmes.What can we do by way of help to certain countries through mulilateral institutions?
And so I think that this summit meeting is going to give indeed very positive signals, it is going to be a very positive message to the rest of the world that we want to promote growth globally without discussing necessarily all of the details of national measures.
I am very optimistic that we can come up with a good result.
Prime Minister:
One of the things that all countries are facing is a reduction in exports as a result in a reduction in trade. One of the things that we will be discussing as we come to the G20 is how we can promote trade, which is essential for growth round the world. So there are a number of measures that we are discussing in detail at the moment about how we can move trade forward over the next period of time. So the stimulus for our economies comes from fiscal, from monetary policy, from trade policy as well as from the confidence that comes from an improved system of regulation.
Question:
… made a significant contribution to the fiscal stimulus, does that mean that you believe that the Eurozone countries in particular have already done enough? And the same question to Chancellor Merkel, does that mean that you believe Germany has done enough in terms of a fiscal stimulus package?
Prime Minister:
We have, and will be able to report to the G20, that the biggest fiscal stimulus that we have seen in history, and because each country is making a contribution, then the effect on each country, of other countries doing it as well, is to magnify that stimulus, to multiply the effects of that stimulus. So what is really happening around the world is that different countries have made their different decisions about what they can do, countries are still looking at what they can do in cutting interest rates, we ourselves in Britain have taken the step of quantitative easing - as has America, as has Japan and has Switzerland. And then we have got the effect of action that we take together to promote trade.
So you have got to look at this as a number of measures designed to get the world economy moving forward, where each of us can help the other by doing similar things, and we will be able to review the effect of these measures when we come to the G20 and we will announce what we can do to further the progress of the world economy, not least through initiatives on trade when we get to London with the meeting with all the G20 leaders.
So we have had the biggest fiscal stimulus in history, we have had the biggest, and are seeing the biggest cuts in interest rates in history. We have done more than at any time in the world to underpin a banking system so that it can actually lend to people, and we have signed lending agreements with firms.
Now all these things are absolutely crucial to the stimulus to the international economy, as well as to our own economy.
Chancellor Merkel:
Well we are still obviously grappling with this problem of how we can encourage the banks to fulfil their role properly and fully, and so how do we also deal with toxic assets, with those that are impaired? That is something that we need to deal with. We will also have to discuss with the Commission what sort of European-wide measures we can adopt in order to cut red tape, because it is not only injecting money that this is all about, but we need to send a clear message to our companies that we are not sort of trying to erect further bureaucratic barriers that stifle investment. And Basle II, what can we do in order to ward off those pro-cyclical effects that Basle II also has, and how can we change the sort of rules that are … in such a way that we are not actually fostering this crisis.
So if we are not launching a classical fiscal stimulus package in the sense that we have always understood it, we also need to look at those other measures that we have adopted - how can we avoid certain pro-cyclical effects, how can we cut red tape, how can we help banks doing their business.
So in Europe too we also need to talk again to the Commission, what can we agree on and what not?
One of my hobby horses is for example broadband, cable, the broadband infrastructure for rural areas. We don’t need money for that, what we need is the proper regulation that actually gives incentives to companies to not only put broadband in place in urban areas, but also in rural areas.
Question:
Both of you actually lauded Switzerland and others for the progress that they made in cooperating on tax havens. Did the British Prime Minister tell you Chancellor that he was going to lend his influence and lean on those countries that are in the Caribbean that are under the influence of the British Crown also to be more amenable to …
Chancellor Merkel:
I think the British Prime Minister has the same interest that I have, namely that they all do their bit in order to do the right thing and I don’t need any promises from him. I start from the assumption that this is a goal that we both share and we are serious on that. International regulations need to be put in place and need to take effect everywhere.
Prime Minister:
An important question for the future. But all jurisdictions must come within the new rules that govern the exchange of tax information. And so as far as we are concerned every country, every dependent territory has got to come within this. As far as we are concerned to sign up in principle has got to be followed by bilateral agreements that show that you mean that you are going to take action. So we are insisting on 12 bilateral agreements from each country to show that they are serious about implementing the principles of exchange of information.
This is a major breakthrough for the world economy because what people are worried about is that standards that are being applied and threaten areas of the world are too low for people’s savings, for their investments, for their companies to be safe. And if we can get higher standards in what were previously tax and regulatory havens, then this, as I have said, is the beginning of the end of tax havens and that is good news for everybody around the world.
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