Remarks by Angel Gurría, Secretary-General of the OECD
27 June 2010
The global economy is at a critical stage. While a modest recovery is under way, it is progressing at multiple speeds; unemployment is unacceptably high, current account imbalances are widening again, and development gaps persist.
We are facing the "after-shock" of the same crisis. It has always been about too much leverage. First, in the banks, and now in the public finances.
Recent financial market developments, particularly in Europe, have made it clear that we are not out of the woods yet.
The fundamental ingredient that is missing to move beyond this critical stage is confidence. Confidence to create the right environment for private sector demand to take over from governments and sustain the recovery. Leaders can bolster confidence in at least three ways:
First, by making a very public commitment to collectively pursue the most ambitious scenario, the so called "upside scenario" within the G20 Framework for Strong, Sustainable and Balanced Growth. Its effective implementation will deliver higher growth, job creation, poverty reduction, lower deficits. Thus, it is essential for its credibility that the G20 continue to deliver down payments like the US financial reform, the many examples of fiscal adjustment and structural reform in Europe, including courageous moves in Spain, the U.K. and Portugal, among others, and the recent welcome announcement by China about flexibility in its exchange rate regime.
The Framework has the potential to become one of the most relevant and durable contributions of the G20 to the world economy. We will continue to work with the IMF, the World Bank and other international organisations to make it so.
A second way leaders can build confidence is to acknowledge that the choice between recovery and consolidation is a false dilemma. What we need is to achieve a "New Balance", where recovery and employment, on the one hand, and fiscal consolidation, on the other, become mutually reinforcing. While fiscal consolidation should be as growth-friendly as possible, we should not underestimate the boost in confidence that courageous, ambitious, well designed consolidation plans can give to markets.
Third, go structural. As deficit spending exits the scene, confidence will be boosted by tapping new sources of growth. This means moving from emergency and urgency measures towards structural policies: competition; education; skills creation; R+D; taxation; public sector spending effectiveness, including the elimination of fossil fuel subsidies; fighting corruption; innovation and green growth.
As the OECD Innovation Strategy shows, innovation explains more than 50 percent of productivity gains. On the other hand, pursuing "greener" supply and demand patterns can make growth stronger and sustainable. Development policies, as the Korean initiative rightly underlines, is another engine of global growth.
Last but not least, maintaining open trade and investment policies - including doing Doha - will create the right environment for a more vigorous recovery.
The OECD is pleased to be contributing to these initiatives. They will all become increasingly relevant for the success of the Framework.
By thus boosting confidence, we will be in a better position to tackle the most tangible expression of the crisis; the human face of the crisis: the very high level of joblessness, particularly among young people. I have just met with the leaders of the Trade Unions of the G20 countries and there is an increasing sense of frustration among them as unemployment remains unacceptably high. We agreed with them that we cannot deem to have dealt effectively with the crisis until the loss of jobs is reversed, and that we will continue to work with them in the pursuit of that goal.
Mr. Chairman, Excellencies, when the house was on fire we all knew what to do: Get a hose!. Today, the incipient recovery offers policy choices and policy options. While it is good to have choices, it becomes more difficult to find common ground . This should not hold us back: the G20 is the place to find such common ground. The OECD stands ready to continue to support your work between now and Korea, France, Mexico and beyond, to build a stronger, cleaner and fairer world economy.
Perspectives on Global Development: Shifting Wealth (publication)