I am very
pleased to be here today and to participate in your 20th annual conference.
This globalizing world is being shaped by the business sector as never before, and it is
this reality which makes our continuing dialogue particularly important. Through your
support and advice, the banking community has helped to develop a foundation of regional
and multilateral trading systems a foundation that is becoming more and more
important to strengthening our world economy.
What must be the starting-point
of any discussion of the financial sector today is the current crisis a crisis that
began with difficulties in Asia but has now become a global economic and financial crisis
from which no country and no sector is entirely spared. This afternoon I want to talk
about the critical role of the multilateral trading system and especially the
recent Financial Services Agreement not only in preventing this crisis from
worsening, but in returning the world economy to the path of growth.
sector in many ways exemplifies the powerful but also uncertain forces that
are shaping our globalizing world. In recent years, governments the world over have moved
to open up and deregulate many aspects of their financial sectors. At the same time,
technological advances in telecommunications and informatics have radically changed the
way financial services are delivered across borders - breaking down national barriers, and
shrinking distances and time. These forces have combined to transform the financial sector
from a predominantly local to a global industry - all in less than two decades.
transformation into a global industry is important on another level. When we talk about
global trade in financial services we are no longer just talking about products moving
across borders. We are talking about building one of the essential infrastructures of the
world economy. In developing and developed countries alike, we are becoming more and more
aware that basic services industries especially the financial sector,
telecommunications and transport are now indispensable foundations for our modern
economies. Their development will largely determine whether we are equipped to participate
in the new global economy - or are left behind.
Yet, as the
current financial crisis has demonstrated, this global transformation both in your
sector and more widely is incomplete. In many cases, we still lack the necessary
institutional, regulatory, and legal structures needed to support a fast-changing modern
economy - both globally and nationally. Integration and openness vary widely - not only
across economies, but across different sectors within your industry and others. In a
certain sense, we find ourselves between two worlds - between an economic system that is
increasingly global, and institutions and structures which have not caught up with this
complex world. The central challenge we face is to bring these worlds together - by
reshaping the global infrastructure, rules, and institutions needed to support our
One could ask
why, in December last year, during one of the most serious financial crises of the past
fifty years, 102 Member Governments made binding commitments to liberalize their financial
services trade under the Financial Services Agreement of the WTO an agreement which
is to be ratified by the Members concerned by the end of January 1999. No country
threatened to withdraw from the negotiations because of the crisis. And none withdrew the
offers which had already been tabled. Even the Asian countries most seriously shaken by
the crisis made commitments to improve access to their markets for foreign financial
institutions. They did so in the belief that stronger competition and greater openness
will make their national infrastructures stronger, not weaker.
absolutely right. The reason why liberalization under the Services Agreement will be so
important is that the Agreement is really about providing the tools to build a stronger
financial system for all economies developing and developed alike. It will do this
by introducing greater competition and choice in the financial service market; by
enlarging the presence of foreign banks, insurance companies and securities firms; and by
building this new, stronger, and more open financial infrastructure on a firm foundation
of agreed multilateral rules. The value of binding these policies in a multilateral treaty
is that it will give a clear assurance that these policies will not be suddenly and
arbitrarily overturned; which will in turn help countries to attract the investment they
need particularly in this uncertain global environment.
financial services liberalization strengthen the financial infrastructure of economies?
The first thing to emphasise is that financial services liberalization is not equal to
capital market liberalization. The Agreement will only require WTO Members to allow
in-flowing capital for the supply of a given service whether a bank, insurance
company or securities firm. This is an important distinction to make because there is a
worrying connection in the minds of some between the current crisis and the
liberalization of financial services. Second, we are talking about services liberalization
inside a system of rules and procedures which have been agreed by consensus with
the necessary flexibility and safeguard clauses that are an essential part of the
Agreement. We are not promoting what some call "wild liberalization" - a market
free-for-all. Third, through liberalization, we will create the necessary incentives to
promote the needed prudential and regulatory policies in the most sophisticated
markets, as well as in the emerging markets. These incentives are the best guarantee of a
well functioning market economy because they are about improving the overall competitive
environment. Financial services liberalization is not the problem in this financial crisis
it is an important part of the solution.
There are a
number of reasons for this. For one thing, the new commitments to liberalization will
favour long-term investment in the development of capital markets. And this, in turn, will
help to strengthen the financial infrastructures of all economies particularly in
the developing world. Technology and knowledge also go hand-in-hand with investment. This
includes knowledge on best practices in management, accounting, data processing and in the
use of new financial instruments all of which will flow from the commercial
presence of foreign banks and insurance companies.
At the same
time, greater competition means that financial institutions both foreign and
domestic will be encouraged to be more attentive to consumers, to be more
transparent, and to better allocate investment resources. Far from destabilizing financial
markets, an open financial services sector will actually enhance stability and confidence
by making the system more accountable because openness means that institutions have
to answer to investors and to adhere to international rules.
It is not
just the financial sector which can be strengthened by liberalization. There are reasons
to believe that liberalization of financial services trade will help promote better
macroeconomic, monetary, fiscal and exchange rate policies. For one thing, the efficiency
of monetary policy is likely to improve. Credit and interest rate ceilings often serve as
monetary policy instruments to control credit expansion and inflation in a closed
financial system. Liberalization, on the other hand, requires the replacement of such
controls by indirect policy instruments, such as open market operations, to control
None of the
commitments made in the Financial Services Agreement will limit a government's ability to
pursue sound macroeconomic and regulatory policies. In fact, as argued above, it will
enhance their options and increase their flexibility. Members will be free to take any
necessary macroeconomic policy decisions. And it will allow temporary, non-discriminatory
restrictions on trade in services, including those on payments and transfers in the event
of serious balance-of-payments and external financial difficulties.
fundamental point is that freer multilateral trade does not mean freedom from rules. On
the contrary. The goal of the WTO is the establishment of a universal system of
non-discriminatory and consensus-based rules - rules which help goods and services move
across borders, but which also provide greater stability, security and predictability in
our fast-changing world economy.
Services Agreement is an extremely important step forward particularly in the
present crisis. But there is much more that the trade system can and must
do. First, we need to be clear that a return to protectionism in the present circumstances
would be a tragic mistake. No country can now expect to export its own products freely
and continue to import capital and technology if it erects barriers to trade
with the rest of the world. It was turning inwards which transformed the financial crisis
of 1929 into a global depression. We do not need to relearn that lesson.
every economy has a part to play. A situation in which some major economic powers are
outside the multilateral system of rights and obligations can hardly be stable. We must
therefore maintain and intensify the effort to bring China, Russia and other countries now
negotiating accession to the WTO inside the system, so that they can play their full part
in responding to the crisis. This would be a powerful signal of confidence in the world
economy and in our ability to maintain and improve market openness.
must show that we are firmly resolved to keep moving forward. The WTO is already committed
to major new negotiations to further liberalize trade. These will start at the end of 1999
on the threshold of next millennium. At the Third Ministerial Conference, which
will be held late next year in the United States, WTO Members will decide on the complex
agenda of these negotiations.
I began by
observing that the financial industry today must be prepared, not only to adapt to a
changing global environment, but to help shape it. With your long history of universal
banking and global outreach, European Banks are ideally placed to play their part. You are
employing new technologies and expanding into whole new financial service activities. And
you are developing new corporate strategies - through mergers and acquisitions. But you
can go further in these directions. And at the same time, you have a growing interest in
maintaining the stability and forward momentum of the global trading system both of
which are more critical than ever in these uncertain economic times.
Just as the
financial sector must continue to lead, so too must Europe. It was the ambition of the
EU's own internal liberalization process which helped inject momentum into the US
initiative to liberalize financial services world wide. It was also Europe which helped
rescue the financial services negotiations from collapse in 1995, and kept them on track
to their successful conclusion last December. Now, as nations and governments grapple with
the current financial crisis and with the task of building a stronger foundation
for the financial system - Europe will once again be looked upon to play a leading part.
Last year the European Union had a current account surplus of over US$ 120 billion and
this year, despite the crisis, the surplus will be almost US$ 100 billion meaning
that Europe clearly has the flexibility and the strength to share a leadership role.
me to a final point. That the strength of Europe's leadership will depend fundamentally on
its economic strength and competitiveness at home. In this respect, I must say that I find
it very worrying that, in the ILO's latest forecasts, more than 18 million workers are
still without a job in the European Union. And that, according to the ILO, the percentage
of unemployed is higher in Europe than in any other region of the world without
taking into account the underemployed. These figures not only reflect a human tragedy and
a formidable social and economic cost. They are a clear and unavoidable sign that Europe
has much more to do in breaking down barriers to employment, and in empowering its
citizens to compete in an idea-based global economy.
We hear many
critics in this period of time of globalization and its role in the present
crisis. But globalization is not a policy - to be judged right or wrong. It is a process
driven by the logic of economic and technological change. Moreover it is a process
which is redefining the meaning of interdependence creating a human dimension of
globalization which demands an equally global policy response across many levels and many
fields. The alternative to this necessary process would be to create again strong national
and regional barriers. It would be a tragedy for all mankind.
addressing the financial crisis is just the tip of the iceberg. What we need is to improve
the management of this new, complex and growing interdependence we call globalization. We
need a new vision to encourage greater participation and responsibility on the part
of developing countries, as well as to promote a greater understanding on the part of all
of us that the problems we face go well beyond sectorial policies only.
when I was preparing my speech for this meeting, I read on the same day two articles: One
by Jeff Garten in the International Herald Tribune, calling for a Global Bank, and a
second in the Economist, discussing the idea of a world currency. My mind went back to the
5th August 1977, when Roy Jenkins, at that time President of the European
Commission, met with the members of his cabinet and with me in his country house in Wales,
to discuss how to revitalize a European Community shaken by the competitive devaluations
that followed in the wake of a floating dollar and the first Oil Crisis. On that day he
told us about his vision for the creation of a European Monetary System what was to
be the first step towards a Single European Currency.
He was right
in arguing that this was the only logic that could save Europe from financial turmoil
and prevent trade liberalization from unravelling. It was a road forward lit with
common objectives, common rules and common disciplines. At that moment, the idea of a
single European currency was seen by most as an impossible dream. Twenty years later, this
dream is becoming a reality.
I do not want
to predict how many years will need to pass before we see a world currency or if we
will ever see one. What I want to tell you is that to emerge from the current crisis we
certainly need to support the different efforts of the financial authorities both
national and international to restore stability and growth. But we will also need
vision, we will need courage, we will need to look beyond the next few weeks or month in
front of us as we did twenty years ago. And more than ever, we will need to build
something whose impact goes far beyond our national and regional borders.
lesson of our generation has been that vision has always defeated scepticism. This has
been the case with the fall of the Berlin Wall without a war; or with the European
construction from a devastated and divided continent, to a customs union, then a
single market, and now a single currency. Let me say that it will also be the case with
our efforts, in the WTO, to build a world trading system, rules based. Thank you.