21 November 1998
"Europe in the World Economy"
Speech to the European Forum Berlin 1998
Clearly the financial crisis has not disappeared, but at least today eighteen months after it first appeared - there are signs of improvement. Korea and Thailand seem to be on the road to recovery - though the road will be a long one. The US Congress has recently approved new funding for the IMF. Brazil's economy has been backed by a US$ 41 billion loan. And the G7 has strengthened the financial base necessary to contain the current crisis, and laid out an agenda for reducing future risks.
Yet if the world's financial situation appears to be improving, the trade implications of the crisis remain a serious concern. Trade volume growth is expected to reach only about 4 per cent this year, less than half the rate recorded in 1997. And forecasts for 1999 suggest the worst is not behind us. Imports have contracted dramatically in the crisis-hit countries, while the United States' and Europe's exports to Asia are declining sharply. It must be clearly understood that if the crisis is prolonged - or worse still deepens - there is a real risk of major damage to the multilateral trading system.
All of this underlines the reality that in today's global economy trade and finance are two sides of the same coin. We will not find a lasting solution to the financial crisis without keeping markets open and trade flowing. At the same time, we will not maintain an open and secure trading system without restoring financial stability.
With one-quarter of global output now exported, international trade in goods and services is one of the main motors powering the real sector of the global economy. This means that the multilateral trading system is deeply implicated both in containing the effects of the crisis, and in returning the world economy to the path of growth.
The past eighteen months have tested the resilience of the trading system, and our Members' commitment to it. So far the architecture has tested sound. There has been no backtracking on obligations under the WTO Agreements. Even at the height of the crisis, we concluded a far-reaching agreement to liberalize trade in financial services - an area where the WTO is making a direct and immediate contribution to restoring financial stability by fostering the need for prudential and other regulatory measures in a climate of increased openness and competition.
The future trade agenda can also provide an important framework for restoring sustainable growth - and in particular for helping the crisis-hit countries to export their way out of difficulty. That is why the success of the WTO's Third Ministerial Conference next year is so important. Governments are already committed to start new negotiations in agriculture and services. And Members have begun considering whether to broaden that agenda - possibly into a negotiation which could be as far-reaching as the Uruguay Round. At the same time, there is a new urgency to accelerating the accession process to bring China, Russia, and the 28 other candidates into the security of the trade system's rules on terms which maintain the integrity of those rules.
But the global trading system does not and cannot - operate in a vacuum. Unless we restore a climate of confidence and stability in the international monetary and financial system, it will be difficult for our Members to contain protectionist pressures, let alone to move the trade agenda forward. That is why I strongly believe it is necessary to hold a joint meeting of trade and finance ministers in the course of preparing for the next WTO Ministerial Conference in 1999. Here are some of the questions that might be addressed:
First, currency misalignments and excessive volatility. Calming uncertainties about exchange rate movements is a key factor in restoring confidence among producers and investors world-wide. In this regard, the introduction of the Euro will be a defining event. It is critical that the Euro act as an additional anchor of stability for the international monetary system.
Second, macroeconomic imbalances. It is of enormous importance that macroeconomic imbalances in the world economy are addressed quickly - and at their source. The chronic under-performance of Japan's economy at such a critical time for the Asian region remains a source of serious concern. Likewise, a sharply deteriorating current account in the United States and persistent surpluses in Europe - are generating deeply worrying tensions. Past experience tells us these tensions will only intensify if nothing is done to correct the fundamentals.
Third, the global governance. We must begin thinking about how to improve the existing international institutions created at the end of the Second World War in order to meet the needs of the 21st century. We have to take into account that the current institutions were designed primarily to regulate and discipline the actions of governments. But today's global economy is being shaped more and more by the actions of the private sector by transnational corporations, huge institutional investors, and millions of consumers. The real question now is whether we need new rules adapted to govern private sector behaviour.
Above all, we need a co-ordinated strategy of growth for the global economy and here trade, fiscal and monetary policy must play a coherent part. In a certain sense, we are having to revisit today the same fundamental questions which preoccupied the architects of the post-war economic system - but on a broader and more complex scale: Can we maintain an open and stable global economy with rising trade, employment, and growth for developed and developing countries alike without a stable global financial system? Can we achieve an integrated global economy without greater coordination of trade with other policies in particular, to promote a coherent macroeconomic framework and to avoid major imbalances in domestic and international markets?
The next months will be decisive in answering these questions and in signalling whether the international community has the resources and vision necessary to tackle the economic, environmental, social and political priorities of the 21st century. Shared leadership has never been more necessary than it is today. Thank you.