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Speakers: Wolfgang Schäuble, Montek Singh Ahluwalia, Mario Draghi, Haruhiko Kuroda, Martin Wolf, Christine Lagarde, Mark J Carney, Laurence Fink
Key points:
Christine Lagarde, Managing Director, International Monetary Fund, said the recovery is in a consolidation process, taking place at different rates and in different areas. Old risks persist that have not been fixed. “Financial market reforms are under way and are not yet completed", she said. “A second risk is unbalanced growth. More interesting are the new risks, such as the issue of how tapering takes place, at which speed, how it is communicated and what spillover effects it has.” [IMF-survey on global growth]
Mario Draghi, President of the European Central Bank (ECB), who told Meeting participants yesterday that Europe was on the road to recovery, acknowledged that the longer inflation stays at a low level – it is currently below the 2 per cent target and will remain there for at least two years – the more serious the risk of deflation. “We are ready and willing to act if needed", Draghi said. Referring to the upcoming ECB’s stress test for European banks, he said: “Our most important objective is to shed light on what is in the banks’ balance sheets, which should be done in an operationally effective and completely transparent fashion".
Wolfgang Schäuble, Federal Minister of Finance of Germany, was upbeat about the eurozone and pointed to the better-than-expected performance of the countries that had to be bailed out. “We have regained confidence in the euro. The euro will remain a reliable and important currency and no one wants to change that.” Schäuble also pointed to progress made in financial reform, including laying the groundwork for the ECB to assume financial supervision for relevant European banks. “I have confidence that we can stabilise the eurozone", he added.
The United Kingdom and Japan are both experiencing a rapid recovery. In what Mark J Carney, Governor of the Bank of England, characterised as “household-led” growth, the 2 per cent inflation rate is back on target. “We have the greatest rate of job creation since records began in 1971", he said.
Haruhiko Kuroda, Governor of the Bank of Japan, said that the Japanese economy has “rebounded very strongly” because of Abenomics’ three arrows – a massive fiscal stimulus, aggressive monetary easing and structural reforms. The 2 per cent interest rate target should be achieved in two years. “We had deflation for 15 years, which created a negative mindset. Now the situation has completely changed and I’m optimistic", he said.
In terms of the global economy, Kuroda told participants: “I am cautiously optimistic. The US economy will grow, Europe is recovering and growing; emerging economies will grow and accelerate. But we need to be mindful of downside risks.”
Laurence Fink, Chairman and Chief Executive Officer, BlackRock, USA, said: “The US economy is going to be fine. Banking is in good shape and is not experiencing deleveraging like those in Europe.” However, he warned that we will be in a world of great volatility. He added: “This doesn’t mean we will end up in a bad place. But there will be a lot of disruptions".
Several experts emphasised the importance to persist with structural reform. “Financial sector reform and the regulatory environment are undergoing a major reset. Those structural reforms are necessary in all corners of the world", Lagarde said. This was echoed by Carney, referring to the international agenda. “The agenda for 2014 is to complete the job of financial reform. We’ve made a lot of progress with Basel III. And 2015 will be about implementation and iteration", he said.
Europe
European and American economists met and promoted the positive aspects of the European economy but all expressed their concern about its future if it does not reform. The panellists raised the spectre of a lost generation of Europeans if the structural unemployment problem is not solved. If you cannot find a job two or three years after graduation, all could be lost, said Giuseppe Recchi, Chairman, Eni, Italy. “It is difficult for a company to hire a 30-year-old person without work experience.”
The panellists called on European leaders to be more aggressive in dealing with the unemployment crisis by, among other things, allowing labour mobility, making sure the skills taught in schools are the skills needed by business, and more investment in education, technology and innovation.
“Europe has tremendous advantages that are not going away overnight", said Kenneth Rogoff, pointing to the region’s high education levels, rule of law and technological innovations, particularly in Germany. But those advantages can wither away if Europe does not move faster on economic and business reforms to create flexible labour markets, enhance competitiveness and improve the ease and cost of doing business.
See also: Rebuilding banking in Europe