Speech by EU Commissioner Rehn on G20 Outcome

Summary: 23 April 2009, Strasbourg - Speech delivered at the European Parliament plenary meeting on the G20 outcome by Olli Rehn, EU Commissioner for Enlargement, at the European Parliament Plenary session

President, Honourable Members,

The results of the G20 London summit are substantial. They provide a message of global unity to work together to get the world economy out of the current crisis - back to the path of economic growth and job creation. The G20 focused on three broad lines of action.

First, it was agreed to do whatever it takes to restore growth. The first and foremost priority now is to restore the channels for credit flows. In this respect, the priority is to deal with impaired assets, endorsing the principles that G-20 finance ministers adopted in March. These principles are in line with the approach taken by the EU.

It was also agreed to implement the announced economic stimulus measures without delay. The EU's coordinated fiscal stimulus of 3.3% of GDP is substantial for Europe itself and provides a key contribution to the G20's short-term macroeconomic response to the crisis.

The G20 outcome ensures an adequate balance between the short-term fiscal expansion and long-term fiscal sustainability. This calls for an orderly withdrawal of the stimulus when the time comes. Here also, the European consensus on the need to protect medium-term fiscal sustainability contributed to the balanced line adopted in London.

Trade protectionism is a potential threat in any global recession. It was thus important that the G20 confirmed the commitment to keep trade and investment open and to avoid any kind of protectionism.

We should not lose the momentum on rapidly reaching an ambitious conclusion to the Doha Development round. In the current economic climate the value of concluding Doha has gone up very significantly. Doha would boost the world economy and prevent protectionism picking up. G-20 countries should look beyond their domestic political "garden" and show real commitment to push ahead without delay.

Leaders also agreed on a trade finance package worth $250bn over two years to support global trade flows, to which Europe will contribute substantially.

Second, an ambitious plan to reshape global financial regulation was agreed. In the future, regulations need to apply to every bank, everywhere, at every time. The G20 made a major step towards such global regulatory convergence that Europe has long been calling for.

The EU succeeded in obtaining the following objectives:

improved requirements for bank capital and liquidity buffers, as well as measures to limit the build-up of leverage;
regulation of hedge funds and private pools of capital;
agreement on better regulation and supervision of credit derivative markets;
more ambitious regulation for credit rating agencies;
the establishment of global colleges of supervisors for all large cross-border banks;
the endorsement of new principles of the Financial Stability Board on executive pay and bonuses in financial institutions.

Decisive action was also agreed on non-cooperative offshore tax havens. Thus in the future there should be no hiding place in any part of the world for fiscal free-riders. We welcome in particular the reference to the end of banking secrecy.

We take note with interest of the OECD list of countries assessed by the Global Forum against the international standard for exchange of tax information. We also welcome the recent announcements made by several countries to move towards adoption of Article 26 of the OECD standards on exchange of information for tax purposes.

Overall, this is more progress than was made over the past decade.

Thirdly, it was agreed to reform the international financial institutions to ensure strong institutions for the global economy and to provide an appropriate representation for emerging and developing economies.

It was agreed to substantially increase IMF resources by up to $500bn to boost the Fund's capacity to help countries in need. EU Member States have pledged to provide €75bn to the IMF (approximately $100bn). Some countries have joined the EU's and Japan's lead in pledging resources to the IMF, but more pledges are necessary, in particular from the US and China.

The IMF will also consider issuing bonds, if necessary. Leaders also supported a new allocation of $250bnin Special Drawing Rights to support global money supply, as well as an increase in the Fund's ability to help low-income development countries.

It was also agreed to reinforce the tools of the IMF, so that in the future the Fund will not just be able to react to crises, but will be better able to prevent them. Leaders committed to launch an early warning exercise by the IMF and the Financial Stability Forum (now "Financial Stability Board") to identify global macroeconomic vulnerabilities. They welcomed the Fund's new precautionary credit line on which countries with a solid economic record can draw before a crisis occurs.

It was also agreed to advance the next regular quota review from 2013 to 2011 and to consider other governance reforms to the IMF. For Europe, it is important that the reform also addresses internal governance to ensure the effectiveness and even-handedness of IMF surveillance and crisis management.

Next, it is essential that the decisions taken by G-20 are delivered rapidly. We should also keep in mind to build a more balanced world economy to avoid past mistakes. A fundamental adjustment of the global growth model - I am referring to the big US budget deficit and to the huge Chinese trade surplus - may be needed in order for the global economy to return to a sustainable growth path.

Leaders agreed to meet again before the end of this year. Effective coordination will be necessary to allow Europe to continue steer the G-20 process.

President, Honourable members,

To conclude, tackling the current crisis requires both effective and coordinated fiscal stimulus and bold reforms of financial regulation and international institutions. Let us recall that this crisis originated from excesses and greed in the financial markets, especially Wall Street.

For Europe, it is a matter of returning to the basic values of the European model, which requires combining entrepreneurial initiative, respect for productive work and strive to solidarity. In other words, our common challenge now is to save the European social market economy from the system errors of financial capitalism.

Thank you.

Ref: SP09-034EN
EU source: European Commission
UN forum:
Date: 23/4/2009

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