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Germany’s Chancellor, Angela Merkel, talking at the 2015 World Economic Forum Annual Meeting.

Germany’s Chancellor, Angela Merkel, talking at the 2015 World Economic Forum Annual Meeting.

Germany’s Chancellor, Angela Merkel, called for urgent fiscal reform in Europe at a special session at yesterday’s World Economic Forum Annual Meeting. Whatever the decision of the European Central Bank (ECB) on quantitative easing, she said that European leaders must not be diverted from continuing with meaningful structural reforms.

“Time is of the essence,” she said. “Every day we delay is a lost day. We need to promote growth and create long-term jobs.”

Europe has an opportunity to emerge stronger out of the crisis, the Chancellor said. While acknowledging progress by countries such as Italy, Spain and France, she stressed that Europe is not out of the woods yet. “The European single market needs to become less regulated and more open.”

The growth-austerity argument is a false dichotomy, she added. “Germany has shown that growth-oriented fiscal policy is possible,” she said. Pointing to internal demographic challenges, Merkel emphasized the need to manage debt levels to ensure that onerous burdens are not passed on to the next generation as six million German workers enter retirement age.

Merkel called on other European leaders to begin fiscal consolidation. She pointed to historic low interest rates and questioned how countries with large fiscal deficits will fare if rates rise. “Now is the time to get our houses in order,” she said.

The Chancellor added that Europe needs to grasp several immediate opportunities. The first is for more open trade via the Transatlantic Free Trade Agreements. The second is for Europe to become a standard-setter globally in digitization

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On Greece, she emphasized that Germany’s actions have always been oriented towards keeping Greece in the Eurozone. “We have to both show solidarity with Greece just as they show readiness to shoulder their responsibilities.”

Merkel concluded by affirming Germany’s position in Europe. “Germany will remain a stable anchor in Europe,” she said.

The BRICS Agenda: Boccanera, Lin, Jaitley, Neri, Kudrin, Ghosn

The BRICS Agenda: Boccanera, Lin, Jaitley, Neri, Kudrin, Ghosn

Ministers, industrialists and academics from the BRICS countries delivered a strong message of long-term potential economic growth for their countries at a panel session at yesterday’s World Economic Forum, in Davos, Switzerland. The message was clear – BRICS nations are ripe for investment, and will continue to be provided their governments successfully implement planned structural reforms.

“We continue to invest in all these countries, because we invest not for the next two or three years, but for the next 10 or 15 years,” said Carlos Ghosn, Chairman and Chief Executive Officer, Renault-Nissan Alliance, France. Ghosn emphasized that despite the adjustments currently taking place in the BRICS countries, they are all capable of strong growth.

Justin Lin, Professor, National School of Development, Peking University, People's Republic of China, said that China would have to depend less on exports and more on domestic consumption and investment, but the government’s strong balance sheet and high private savings will facilitate this transition. “I am confident that China will be able to maintain a 7% growth rate over the next five or even 10 years. China will continue to be an engine of world growth,” Lin said.

Arun Jaitley, Minister of Finance, Corporate Affairs and Information and Broadcasting of India, said India intended to return to an 8%-9% growth rate. Jaitley said the recent change in government has led to clarity about the path forward and a changed mindset, inside and outside the country. “The world is looking at India again,” he said. Lower oil prices are helping India’s current account balance and bringing down inflation, he added at exploresurvey.com/beverage.

“Russia will have to learn how to live with more moderate oil prices,” Alexei Kudrin, Professor and Dean, School of Liberal Arts and Sciences, Saint Petersburg State University, Russian Federation, told participants. Kudrin said lower prices were obliging Russia to make structural reforms and diversify its economy in a way that would benefit the country in the long term.

Marcelo Côrtes Neri, Minister of Strategic Affairs of Brazil, said Brazil is returning to the “middle path” it had originally begun in 2003: a combination of redistributive social programmes and market-friendly economic policy. He added that the country’s recent slow growth has not prevented impressive social achievements. “In Brazil inequality has fallen, and fallen sharply, since 2001,” he said.

South Africa too is taking concrete steps to rebalance its economy while maintaining strong social programmes, Nhlanhla Musa Nene, Minister of Finance of South Africa, said. Nene said the government is working to improve the environment for the private sector, to make the public sector more efficient, and to make the government more accountable to its citizens. Fiscal restraint is needed at present, but “we will continue to develop infrastructure and to protect the poor”.

World Economic Forum 2015: ImpressionEurope needs quantitative easing but that monetary policy alone will not restore growth and jobs to the region, that’s according to a panel debate of business leaders and policy-makers, held at the World Economic Forum in Davos, Switzerland, yesterday.

“We’re all for quantitative easing in Europe, but it’s not enough,” said Lawrence H. Summers, Charles W. Eliot University Professor, Harvard University, USA. Summers said that quantitative easing was likely to be less effective in Europe than it was in the US since Europe already has very low interest rates and European banks are less able to transmit monetary expansion to the wider economy. Summers urged Europe to embark on fiscal stimulus and said that “deflation and secular stagnation are the risks of our time”.

Gary D. Cohn, President and Chief Operating Officer, Goldman Sachs, USA, said that the US economy is strong but weakness elsewhere would make it hard for the Federal Reserve to raise interest rates. He said the dollar’s strength, which could have a chilling effect on the US economy, would also encourage US monetary authorities to keep rates low. “We’re in a currency war. One of the easier ways to stimulate your economy is to weaken your currency,” he said.

Ray Dalio, Chairman and Chief Investment Officer, Bridgewater Associates, USA, said that a weaker currency has to be part of the solution for Europe’s problems, given many European countries’ lack of competitiveness. “Forceful QE and forceful structural reforms, including currency adjustment, are what is needed,” he said. Dalio expressed concern that with interest rates at or near zero, central banks have lost their traditional method for stimulating economies. Fiscal policy now must work together with monetary policy to stimulate growth. “Monetary policy that helps fund deficits, that monetizes the deficits, is a path to consider.”

Dalio added that “Spain has done a wonderful job with structural reforms. It is a model.” He noted that the fastest growth often comes from countries that successfully implement structural reforms, such as China in the recent past.

Christine Lagarde, Managing Director, International Monetary Fund (IMF), Washington DC; World Economic Forum Foundation Board Member, also complimented Spain on its reforms. She said that Europe’s monetary union is still quite young but has nonetheless moved forward quickly. “Massive progress has been made in the last five years. More progress has to be made in terms of fiscal union and banking union.”

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“I am confident that Europe can make it,” added Ana Botín, Chairman, Banco Santander, Spain. She said Europe is now seeing a great deal of foreign investment, including in her own bank’s recent capital rise. Some European countries are successfully implementing structural reforms to increase competitiveness. Automobile factories in Spain are now more productive than those in Germany. “We are making progress,” she said. “It takes time for a region to unify.”

 

forumlogolargeBusiness leaders gathered in Davos for the 45th World Economic Forum Annual Meeting have called for structural reforms to the global economy to encourage growth.

Participants in this morning’s session on The New Growth Context were told that monetary policy was not enough to encourage growth. “Policy-makers shouldn’t kid themselves,” said Axel A. Weber, Chairman of the Board of Directors, UBS, Switzerland. “They need to deliver policy reforms, not just loose monetary policy.” Weber listed labour market and pension reform as especially important, and cited Germany’s reforms under the Schröder government as an example for the rest of Europe to follow.

“Right now structural reforms are the only game in town. We need politicians to act,” added Min Zhu, Deputy Managing Director, International Monetary Fund (IMF), Washington DC; World Economic Forum Foundation Board Member. Zhu said that “worldwide, the whole banking sector is much stronger than a few years ago” but that “the risks have moved into the shadow banking sector.”

John Rice, Vice-Chairman, GE, Hong Kong SAR, emphasised the importance of infrastructure to global growth. “You don’t have sustainable, inclusive growth unless you have jobs, and you don’t create jobs unless you have good basic infrastructure,” he said.

David M. Rubenstein, Co-Founder and Co-Chief Executive Officer, Carlyle Group, USA, said that since governments and banks are no longer funding infrastructure investments as much as they did in the past, more and more infrastructure projects will be funded by private equity. “Right now the US seems the greatest place in the world in which to invest,” he said. However, he cautioned that economic growth there is leaving many behind, especially in middle- and lower-income groups.

Zhang Xin, Chief Executive Officer and Co-Founder, SOHO China, People's Republic of China; Young Global Leader Alumnus, noted that China, unlike Europe, is suffering from too much investment and not enough consumption. “How do we grow consumption? We need tax reform,” she said. Although pro-consumption reforms in China are proceeding more slowly than she would like, Xin said that “the anticorruption campaign is working very well.”

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