G20 summit – Press conference
London, 2 April 2009
THE PRESIDENT – (…) The G20 heads of State and government have thus decided to radically reform the international financial system, which hadn’t been done to such a great extent since the Bretton Woods Agreement in 1945.
We agreed on an exit strategy from the global economic crisis which is the most serious in the past 70 years. In Washington, we had approved principles and had agreed that the decisions were for the London summit.
The first type of decisions we have taken: the heads of State and governments’ commitment to strengthen the regulation and oversight of financial activities. This was a priority for Germany and France. This priority has been adopted as one of the priority objectives, the number 2 of the heads of State and government, and is the subject, you will see in the documents which are going to come out, of a solemn and specific declaration on financial regulation. Regulation is thus a G20 priority and is the subject of a solemn declaration which you will see is pretty detailed. You will see that the communiqué refers to the major failures in the financial sector and in financial regulation and supervision as being fundamental causes of the crisis. It is now officially recorded that failures in regulation are the fundamental causes of the financial crisis, with this financial crisis the fundamental cause of the economic crisis.
We have got action on the hedge funds, which today account for $1,200 billion of investment, which from now on will be regulated. They will have to be declared, there will be compulsory registration, transparency in the fund management rules and oversight of banks’ relationw with these funds. It’s unprecedented. Until now, hedge funds weren’t subject to any obligation.
On traders’ remuneration, we have adopted common principles. The declaration is detailed on what will be a responsible pay and compensation policy. And those who have risky policies will bear the cost in terms of capital requirements. To be clear, the supervisors will be able to impose on banks which haven’t got a reasonable system for remunerating traders, obligations in terms of increases in their own capital requirements. That too has never been seen before.
CREDIT RATING AGENCIES
On rating agencies, there will be a code of good conduct which will prevent conflicts of interests and compel rating agencies to be transparent particularly in the twin activity of rating and investment.
ACCOUNTING AND PRUDENTIAL REGULATORY STANDARDS
On accounting and prudential standards, there are numerous advances. We have agreed on a statement providing for the review of accounting principles when valuing derivatives with reference to the market doesn’t make sense, and for long-term investments. Quite honestly, it calls into question the concept of “fair value” which until now was the bible.
Systems for requiring banks to build buffers of resources in periods of growth so as not to have to toughen requirements when precisely we need credit for the economy. This is the whole debate on procyclicality.
We have also decided that banks will keep on their balance sheets a percentage of the risk from securitization. Sorry about the technical nature of this, but it’s the whole issue of the traceability of securitized assets which the G20 is taking up. There was a debate on the percentage. We almost got 5%. We fought less on that because I think we have to go beyond 5%. That shows you the countless discussions we had, the idea is that a speculative fund or bank which engages in securitization will have to keep a percentage of the securitized loan on its balance sheet. But we didn’t put the 5% in the communiqué. We, Germany and France, wanted to go beyond this, but the principle has been adopted. You will understand that when there are a lot of people around the table [not everything is possible], but the principle of securitization has been adopted. It’s been done.
HARMONIZING DEFINITION OF CAPITAL
Also accepted is the [adoption of guidelines for the] harmonization of the definition of banks’ core capital by the end of the year. You can see the importance of all this: it’s that banks will no longer compete by lowering capital requirements since we’ll have a definition. Here too, we didn’t agree on what will constitute core capital; the G20 finance ministers are going to work on this, but we’ve agreed that from now on an international standard will define core capital. This too has never been seen before.
REINTEGRATION OF OFF-BALANCE-SHEET ITEMS
Lastly, final point, there are a lot of others on this chapter, we have decided to integrate off-balance-sheet items. You know what I think about off-balance-sheet items in the calculations of capital requirements formulated by supervisors. To put it clearly, the supervisory authorities will require core capital to include not only what’s on the banks’ balance sheet – what they have lent – but also off-balance-sheet items.
That our Anglo-Saxon friends [English-speaking countries] have accepted all this is an immense step forward. I think we’ve never made as much progress at a meeting of this nature.
On tax havens – which were being discussed right up to a few minutes ago – in the communiqué you will see a sentence, I quote, “The era of banking secrecy is over”. I say, it’s a principle, “the era of banking secrecy is over”, signed by the 20 countries around the table. A list of sanctions is envisaged in the declaration for non-cooperative financial centres, tax havens. These range from increased administrative constraints to banning international organizations from investing funds in these States. Finance ministers are to set out a range of sanctions even though a number are envisaged in the declaration.
We also contacted the OECD leaders during the meeting to get them to publish the list of tax havens. Publication today, within two hours – since Gordon Brown has spoken to them on the phone. And the communiqué notes the OECD’s publication of the list of tax havens. I must honestly say that it was a very frank discussion. Everyone around the table wants an end to tax havens; there’s no difference of view here, everyone is aware of the need to sanction them. The only technical problem we had is that a number of countries around the table aren’t members of the Global Forum. We have to be honest enough to say that we can’t ask them to comply with rules when they aren’t yet in the forum. They have a deadline for joining the Global Forum, but all accepted an explicit reference in the communiqué to the list of tax havens as defined by the OECD. Let me add that it’s better for the organization monitoring the tax havens to publish the list rather than the G20 which has no general secretariat and isn’t a specialist on this.
I’ll cover the rest far more quickly before answering questions. There’s an unprecedented increase in the resources of the financial institutions and particularly of the IMF, which is going to have an additional $500 billion available for lending. We’re going to give $850 billion more to the financial institutions, $500 billion for the IMF, which sees its resources tripled, not doubled. $250 billion of Special Drawing Rights, $100 billion for the development banks and we got the sale of IMF gold for the poor countries. There will, among other things, be a doubling of IMF loans for the poor countries, particularly Africa, something I had talked about during my visit to Brazzaville. (…)
Finally, of course, on the economic stimulus, we’ve got agreement, more or less, on everything we’d done. If the crisis were to worsen we’d be ready to do more.
Ladies and gentlemen, the fact that we’ve been able to find an agreement of this nature is unprecedented. I have to say that the Franco-German axis has worked well. I want to say that Gordon Brown has been, intellectually, a particularly honest G20 president and it’s been a pleasure to work with him. He made a point of giving precedence to his position as chairman over – to be brief – the Anglo-Saxon world’s more traditional positions. President Obama has really helped find the consensus. He himself didn’t focus totally on the stimulus. He was, as much as we were, committed to improving regulation and it’s even he who helped me convince President Hu Jintao about including the reference to the list of tax havens published by the OECD, and I want to thank him for this. And we also decided – I proposed it and it was accepted – that the third G20 summit would take place after the General Assembly or during the United Nations General Assembly in September in New York. Since we are all there, we might as well take advantage of it. The first G20 summit, the principles, Washington; the second G20 summit, action; the third G20 summit, assessment of everything that’s been decided.
FINANCIAL STABILITY BOARD/FSB
Final point which wasn’t on my paper: we have also decided to create a genuine global finance organization tasked with proposing crisis plans. We’re going to replace the Financial Stability Forum by a global finance organization. This is very important and it’s important because this global financial organization which we’re going to call the Financial Stability Board – we’re going to move from the Financial Stability Forum to a Financial Stability Board – and what’s very important is that this is going to enable us straightaway to bring the major emerging countries into the Financial Stability Board, which is crucial since of course this is going to allow China, India and other countries to play their part.
I also want to say – sorry, my presentation is very probably a bit disjointed because we’ve just this instant come out and all this was being discussed right up to the last moment – cooperation between supervisors is being substantially strengthened, since the various national supervisors are going to set up the supervisory colleges we lacked to supervise the multinational banks. There are national and even regional supervisors, and there are regional and even international banks, this can’t work. Well, from now on national supervisors will form a committee to supervise the international banks.
Listen, frankly, to tell the truth, this is beyond what we could have imagined. We are all conscious that alone we can do nothing. We are all conscious of the need for new rules, to radically reform the system; it’s what we have done. I’m really happy with the result. I think that we’re all happy with the result, and it was even somewhat moving to see such different countries as China, India, South Africa, Saudi Arabia, Germany, France and, of course the United States agree on such detailed measures to address the crisis. Our idea was, that to end it, put the economic crisis behind us, confidence has to return. For confidence to return, there have to be new rules to put an end to the financial crisis. (…)
OECD/TAX HAVEN BLACK LIST/CHINA/BRAZIL
Q. – Is the OECD being asked to publish the list in order to get round the fact that China and especially Brazil don’t want to be associated with this list’s publication? Is there a process which will allow us to determine which countries are on the black list, which on the grey list and how this will change in the future, since you say there’s a process for all this?
THE PRESIDENT – Brazil didn’t present any problem. The problem stemmed simply from the fact that in order not to be on the OECD’s black list it’s necessary – I’m speaking from memory – for agreements to have been signed on the exchange of information between the target country and 12 others, I’m sorry I’m going into detail again here because all this is pretty specific. For technical and not at all political reasons, to my knowledge Brazil has signed two. That’s the problem, but Brazil didn’t create any difficulty regarding the reference to the OECD list.
China – I’m going to be very up front. President Hu Jintao and I saw each other very late both for bilateral reasons and also on this question. Traditionally, China doesn’t accept the rules of bodies she isn’t a member of. Frankly this is understandable. But in the end, after a three-way discussion – President Hu Jintao, President Obama and I – we reached an agreement. The OECD is publishing the list today and the G20 is noting this. Perhaps that can seem a bit abstruse to you, let me nevertheless remind you how different the positions were at the start. But had the G20 published the list directly, it would have been the OECD list, since the G20 hasn’t got any administration. Whether it’s the OECD which publishes it today or the G20 which publishes it today, the result is the same since, as you know, the G20 would only have taken the OECD list. What’s very important, I think, is the fact that this is the first time China has agreed to make a reference to a body she isn’t a member of. (…)
Q. – (inaudible)
THE PRESIDENT – There were tensions in the summit up to half an hour ago, but who could have imagined that such different cultures, at times such divergent interests… The world since Bretton Woods has been getting by with a financial model – it’s not my place to criticize the Anglo-Saxon model which has its advantages. Clearly, today a page has been turned. Does this have to be done through frank discussions? Yes. Your question is: had Germany and France not demanded results of this nature, would we have been given them spontaneously? A man as experienced as you, what do you think?
But I have, too, to be very honest: Gordon Brown has played by the rules; truly, President Obama – I have to say this, it’s the truth – helped on the tax haven issue. There were enough of us in the room for you to be able to get the details of what happened and you will see that this is how it was. I have to be truthful and say that President Hu Jintao, who had a fairly firm position until the end, was good enough to see that reference to the publication of the OECD list in the communiqué was making a link which was obligatory for me and, of course, for Mrs Merkel, these are the ideas I defended.
CRISIS EXIT TIMETABLE
Q. – Have the G20 members got a timetable for ending the crisis? Did they look at a number of scenarios?
THE PRESIDENT – Yes, of course. Dominique Strauss-Khan, as head of the IMF, talked about his forecasts and the figures you will see in the communiqué, in terms of job creation; there was a long debate: should or shouldn’t we put figures? These come from analyses by the international organizations. We had the World Bank President, WTO Director-General and IMF Managing Director. They told us which models they were working on with a crisis exit during 2010.
But for us, of course it’s important, we want to end the crisis as soon as possible, but the important thing is to take the decisions. Afterwards, you will comment on them, the experts will discuss them, but we have to take the decisions immediately. What was our reasoning? The financial crisis led to an economic crisis; it wasn’t the economic crisis which led to the financial crisis. The financial crisis led to an economic crisis. The financial crisis was caused by the absence of rules. And the absence of rules led to the absence of confidence. So we’re saying: we’re bringing in new rules to resolve the financial crisis, to recreate confidence and get the economy moving again. So that done, when is it going to get moving again? There are some very good figures, for example in France for the car industry, they are excellent. Here or there in the world there are some figures, little bits of good news. But when is this going to produce results? We hope as soon as possible.
I have to be truthful and say that, if my memory’s accurate, our Chinese friends are, I believe, putting $570 billion on the table. You can see that around the table, if I think back to what happened in my meeting with Mr Barroso with Mr Bush at Camp David, things have made enormous progress. President Hu Jintao is putting $570 billion on the stimulus table, of course this is important.
We all tried to move, understanding the need for an economic stimulus and for regulation and that regulation necessitated pretty radical changes.
Q. – Where do you put Switzerland: black? Grey? (…)
THE PRESIDENT – Listen, I say to my Swiss friends it’s not for me to classify countries. I’m not a specialist, I’m not an expert. (…)
There are in fact three lists: a white list, a grey list and a black list. On the white list are countries like France who are completely up front vis-à-vis the OECD’s Global Forum rules. Switzerland, you are in the grey list because you have announced a shift, which if you complete it, will bring you up into the white list. If you don’t do so you will go back down to the black list.
But this isn’t a judgement by Mrs Merkel, M. Sarkozy or Mr Obama. There are rules; they are the same for Luxembourg, they are the same for Monaco and they are the same for Andorra. I’m taking examples which concern France so that you can be assured of my perfect objectivity. I’ve spoken to Prince Albert; I told him that the commitment he had made on Monaco’s behalf was taking Monaco towards the white list. But of course this actually has to happen.
Q. – You’ve talked several times about China. What impression did you get from this meeting with the Chinese President, that the two parties have agreed to resume bilateral relations, and how important is this result?
Is it true that China asked you never to have another meeting with the Dalai Lama in return for your reconciliation?
THE PRESIDENT – No. You know, the Chinese are extremely pragmatic, it would never occur to them to ask for things they wouldn’t get. So that things are clear, the meeting with President Hu Jintao was extremely important to me because I’m very keen on the strategic partnership with China. It’s in everyone’s interest for China to shoulder all her responsibilities in the international concert of nations. I’ve always considered Asia to be extremely important and the partnership with China, Asia’s leading power, absolutely fundamental.
Throughout my political life, I’ve taken the view, following the example of what General de Gaulle decided in ’64, that there was only one China, only one. I’ve always defended that idea, I’ve always considered Tibet part of China, an idea I’ve always defended, as M. Chirac defended it, as M. Mitterrand defended it, as M. Giscard d’Estaing defended it, as did General de Gaulle when he recognized China in 1964. (…) Moreover, the Dalai Lama himself isn’t asking for Tibet’s independence. There, we’ve cleared up the misunderstandings, I’m extremely glad about it. There’s no hidden agreement if that was the question.
Q. – On the G20 format: this is the second meeting, there will be a third. Do you think this format is appropriate or do you sometimes say to yourself that the structure is too cumbersome?
THE PRESIDENT – It was France, as President of Europe, who had the idea of the summit. I was more in favour of a G14, and a compromise with Mr Bush led to the G20, so that the record is absolutely straight.
I think there has to be a bit of flexibility. First of all, it wasn’t possible not to hold a third summit so long as the crisis hadn’t ended. I think we all agree that the G20 has to continue at least so long as there’s the crisis. Is it called on to go on forever? I wouldn’t bet on it, but at least during the crisis.
But – at France’s proposal, moreover, because there’s a whole commitment on rejecting protectionism, etc. – I pointed out that we weren’t saying any more than in Washington. Yet we had to have results. So I proposed there be a meeting of heads of State to find an agreement. You know very well that this is an idea I’ve defended from the outset: change of method. We agreed that at Magdalena, in fact for the G14, we’d talk about the WTO.
Not, of course, to replace the WTO, M. Lamy, but to try in July, in Sardinia, to resolve the India-United States and United States-Europe issues so that M. Lamy can resume the discussion. So you see we’re taking a decision at the G20, we’re going to try and make a G14 operational before referring the issues to the forum of the 177 or however many – I’ve forgotten – countries there are in the WTO. That’s the system we’re trying to put in place.
Q. – For all the French, Europeans and planet’s inhabitants confronting the crisis, what concretely is the G20 bringing them? That’s what they are waiting to know. And then the second question is: how far have we got on the road to the radical reform of capitalism you were calling for?
THE PRESIDENT – There you are being harsh, because I really thought I had explained things a bit. What I’m announcing to you (…) is an absolutely substantial change. I’m not even referring to the decisions but to the simple fact that we’re talking about them. On top of that we’ve talked about them and taken decisions. If that isn’t a radical reform!
Listen, getting agreement with the Americans and British on an international system for remunerating traders and on a reasonable remuneration, if that isn’t bringing probity to capitalism, what is it? Putting hedge funds under the control of supervisors, if that isn’t radically reforming capitalism, what is it? Getting the list of tax havens published the day you take the decisions backed up by sanctions... Listen, 62% of hedge funds are located in tax havens, this is at the heart of the whole issue.
Where I obviously go along with you – this is probably my fault, it’s both technical and specific – regards the question: is this going to give me a job? Obviously supervising hedge funds doesn’t create a single job in the textile industry, but at the same time the folly of the excesses of the hedge fund system led to an economic crisis. You can’t agree that the financial crisis has impacted people’s daily lives by creating unemployment, and not consider that new financial rules won’t have any impact on peoples’ lives.
Am I making myself clear? You can’t say: “the financial crisis is creating unemployment; take measures to end the crisis and turn the page on the folly of these years of complete deregulation” and also say: “that won’t have an impact on people’s daily lives”. What do you want me to say to you?
Let me add that all the economic stimulus efforts under way and determination to complete the WTO agreement are really extremely important. Frankly, I can tell you, there were moments, a bit of tension, but never, honestly, did we think we could get such a wide-ranging agreement. It isn’t the victory of one camp over the other, of one vision over the other. It’s the recognition by everyone that the world has to change. I think that’s what’s most important. Of course there were tensions, of course there were real tussles, of course countries had their own interests, but everyone, including our Anglo-Saxon friends, are now convinced that we must bring in reasonable rules. But we, Mrs Merkel and I, don’t want us to move from an absence of rules to an excess of rules. I want that to be clear.
Q. – My question is about protectionism. We didn’t hear about this in Gordon Brown’s opening remarks at the end of your summit. Was there a mention about Barack Obama’s “Buy America” clause in his stimulus package?
THE PRESIDENT – No. I don’t know if Gordon Brown talked about it, but freedom of trade and the rejection of protectionism are the subject of several paragraphs and a specific declaration. What have we all got in our minds? The ’29 crisis. Not that it’s the same, not at all, or the same kind of crisis, but in ’29 all parts of the world focused inwards and that worsened the crisis. So we don’t want to do the same thing. I spoke to you about Magdalena and what we’re going to do.
Thank you for following this summit really closely./.