World Economic Outlook and the situation in the Euro area
Remarks by Angel Gurría, OECD Secretary-General, delivered at the B20 summit
Los Cabos, Mexico, Sunday 17th June 2012
Managing Director Lagarde, chère Christine,
President Zoellick, dear Robert,
Professor Hausmann, dear Ricardo,
It is a pleasure to join such distinguished speakers to discuss the world economic outlook. To talk about Europe today is to talk about the major risk for the global economy.
We are now five years into the crisis, this is the 7th G20 summit, and the crisis is still with us. Its epicenter has moved both geographically and in terms of key issues to deal with. Its social costs, both economic and social have been huge. They are still increasing.
The urgency now is right in the Euro area. The “muddling through” scenario, with muted growth but no “accident” which we painted in the past seems more and more unlikely. Policy makers must avoid the downside scenario of a major shock to the European and global financial systems. This would lead to a deep slump that would cost millions more jobs and lead to widespread corporate failures. And this is not about Europe. It will affect us all. It is already happening.
Europe has everything to address this situation. Europe is big ; Europe is rich ; Europe has the capacity to reinvent itself ; Europe has already done a lot during this crisis. Now Europe should finish the job.
Europe has to mobilize its strengths, and put out the immediate fires associated with the spiraling banking and sovereign debt crisis.
Several immediate actions are essential.
First, weak European banks have to be recapitalized. And to escape the too-little-to-late syndrome, Europe needs to think big and act big right from the beginning.
Second, the existing firewalls need to be strengthened and made operational.
Third, the euro area needs to convince markets that it can work together towards a stable long-term vision. In short, this means immediate steps towards a banking union, following the signing of the fiscal compact.
Europe should use all its institutions, the ECB, the EFSF, the ESM, the EIB, etc. to address both the banking and sovereign fragility. It has awesome firepower but has to show it and transmit that it is willing to use it.
Europe is able to take these steps and will do so. Thus the crisis could turn into an historic opportunity to implement ambitious and long-awaited structural reforms and tackle the deep roots of the crisis. In most countries these reforms have already started. They should help address the unsustainable divergence in growth patterns among the euro area countries that led to the crisis. This is good news and, as businesses, I urge you to look again at the opportunities that are opening up in those countries that have been undertaking reforms. Italy and Spain are important cases, as they are embarking in very meaningful agendas for reform that will improve their productivity, their competitiveness and growth prospects.
It is often asserted that structural reforms only deliver benefits in the medium term. We believe otherwise – Our analysis proves that if properly targeted and combined, structural reforms can deliver results much faster and at lower short-term costs than generally expected. For example, reducing red-tape will create new business opportunities and investment right away. Reforming pension systems will do the same
Just as important, much more can be done to move towards the ultimate goal: the Single Market. This would present huge opportunities for your businesses.
Acting even more forcefully on this reform agenda, going both structural and social structural is essential to rebuild confidence at a time citizens of the European Union are losing faith in European integration. Reforms are key to break the vicious cycle of eroding confidence and low growth. And let me stress that this is true not only for Europe. All countries would benefit from going structural and going social.
Ladies and Gentlemen,
Let me finish on a positive note. I believe there is an upside scenario for Europe and for the world at large. For each problem, we can see a solution. The immediate fires can be put out. Europe can enjoy stronger cleaner and fairer growth and start to generate new jobs. We must work together to ensure that this happens.