When do we declare the recession over? Everyone has his own yardstick. Mine is simple: when we have started creating jobs and have restored discipline in the financial sector. Only then, when we have cut unemployment, can we say the crisis is finished. Today, despite talk of green shoots, this is not the case.
Last year, governments reacted with determination to a global financial emergency by adopting significant and unexpected measures. Leaders of the Group of 20 nations took difficult decisions to start restructuring world economic governance in a constantly mutating situation.
In the banking sector, strong rules were set for compensation. Some countries, including France and the UK, have decided to implement promptly the more stringent regulations. I hope many more will follow.
In the past six months alone, 150 tax information exchange agreements have been signed and the number of tax havens has been drastically reduced. Sanctions will be enforced from March 2010 for those countries that refuse to share information.
We have also made substantial progress on harmonising prudential standards. The Basel II framework for banking capital has been accepted by all and heads of state have committed to applying it to the most important financial centres by 2011.
These examples prove that, when there is a collective will at the top, a lot can be done to rescue the system.
However, while stimulus packages are helping to stabilise our economies and red lights are beginning to turn green, we are not out of danger. We remain in a fragile, unsettled situation and much remains to be done.
Firstly, we need to find the right way and the right time to start implementing our exit strategies – and must do so in a co-ordinated manner. It is incredibly difficult to tiptoe out of recession. It requires eliminating imbalances and fighting unemployment, but also understanding how and in which areas new and sustainable growth will arise. Premature removal of the crutches we gave our sick economies could destroy the green shoots, destroy investors’ confidence and throw us back into a more severe crisis. An untimely exit might prove riskier than continuing to support our economies for a few more quarters.
While fully aware of that risk, conversely, we cannot continue to burden the next generations with alarmingly large budget deficits. In France, we are determined, despite our current difficulties, to carry out structured deficit cuts, such as the non-replacement of one civil servant in two, and to revisit rules on retirement in 2010.
Secondly, we need to find the right balance between rules restoring and securing financial stability and an efficient, innovative spirit allowing fair competition between banks. I do not believe in regulating for the sake of it, but I do believe in a stable and controlled system with the same rules for each player.
Further progress is also needed on accounting standards. Regulators should have their say on their ultimate purpose and ensure they do not promote volatility. Market value must be used, when relevant, in considering how a business uses its assets. But it should not be an excuse for failing to measure, assess and account. This is not a political issue but rather a matter of concern for society.
Thirdly, we need to make sure that requiring banks to hold more and better quality capital does not hinder their ability to lend to individuals and companies. This is an acute problem in Europe where banks play a big role in financing the economy. Stress tests on European banks have shown their resilience and ability to withstand potential adverse conditions. But it is clear that complex and risky activities should lead to more stringent capital requirements.
Finally, the G20 countries need to defend and carry the voice of the poorest nations. It would be morally inexcusable to pretend that, because we, as developed countries, have our own difficulties, we cannot help those who have the least and suffer the most. Jointly with the UK, France was the first country to use a part of its special drawing rights allocation to support International Monetary Fund lending to the poorest nations.
We have gone halfway. We can go back to where we came from; or forward to continue building a better and safer financial future. Even if bankers demur, they will come to realise reform is in everyone’s interest.
The writer is France’s minister for the economy, industry and employment