G20 agreement: Will it work?
Last week's G20 summit made the headlines with a $1 trillion pledge to try and kick-start the global economy. But will this be enough to tackle the worst economic and financial crisis since the Great Depression? Prime Minister Lawrence Gonzi believes...
Last week's G20 summit made the headlines with a $1 trillion pledge to try and kick-start the global economy. But will this be enough to tackle the worst economic and financial crisis since the Great Depression?
Prime Minister Lawrence Gonzi believes the G20 agreement was actually much better than he expected. "I am positive with respect to the outcome of the G20," he told The Times Business.
"The G20 outcome is concrete and focused. $1 trillion are being made available to try and stimulate economic growth at a rate which is faster than the IMF had predicted, and that is what the world needs at this stage. The G20 agreement is trying to address those very issues that seem to have created all these problems in the first place.
"This is why I appreciate very much what was done with respect to credit rating agencies and measures to control financial institutions, hedge funds and all those areas which seem to have not been adequately regulated in the past," he said.
Dr Gonzi, however, offers a word of caution about the G20 agreement: "Perhaps there is one thing that one has to be careful about now, and this is something which President Obama said at the EU-US summit which I attended in Prague. At this stage nobody can really be sure that all this will work. Notwithstanding everything that is being done, the enormous funds for example - never in modern history has anything of this sort ever been attempted - nobody is 100 per cent sure that this will work," he said.
The Prime Minister said the important thing now is to monitor very closely what is going to happen in the world's economies.
"We have to see whether the economies will respond to all of this, whether consumer confidence and demand will start to grow again. If that works we will be fine, but if it doesn't work then we will probably have to sit down again and try to come up with some other measures."
Asked whether he regrets the fact that no joint stimulus package was agreed to at the G20, Dr Gonzi replied: "My position has always been very clear. The world is made up of different economies with a lot of variables or rather different situations in different countries. Even in the EU - one bloc with common rules - there is a variety of different situations. Malta finds itself in a much stronger situation than other countries, for a variety of reasons, such as the make-up of its economy, the prudence that we adopted in the past years, also because of the size of our economy.
"There are factors which distinguish one country from the other. I strongly believe that one- size fits all solutions is no solution at all. On the contrary it will probably push funds into areas which do not really require them, and reduce funds into areas that should be going into," he said.
Dr Gonzi said Malta has his government has always taken the stand that every country needs to have its own stimulus package designed in accordance with its own economy "to maximise on every euro cent that is invested".
"This is what we are doing in Malta. We began with our budget where we focused our stimulus package into areas that needed help, and now, fortunately for us because we are small and focused; we identified those factories that are in need of help, which we support whenever possible.
"I believe we should leave this flexibility in the hands of every country and their own particular situation and then the sum of all of that comes together. It's like a mosaic where every bit put together - although different - completes the whole picture. If all the individual stimulus packages are actually implemented by each one of these countries, large and small, east west, north, south, then there is a good chance that the economy will start to respond. If all of this creates demand on a global scale, then the global economy will certainly start to recuperate."
Dr Gonzi also said that Malta should be very proud of the fact that an OECD document, included in the G20 conclusions, states that Malta is completely in line with OECD parameters in financial services "and this places us in a very strong position for us to compete".
Dr Gonzi also spoke to The Times Business about last week's EU-US summit in Prague which he attended.
"President Obama made a very clear statement: A strong Europe is a strong partner for the United States and therefore the partnership between the two sides is a priority. This is extremely good news - it has always been like that - but everybody knows that in recent years because of different issues - including the Iraq war - this relationship went through strained time.
"It is good to hear that both sides are determined to build on this partnership. President Obama also made the point that in the present global economic downturn the strong economic power blocs of Europe and the US working hand in hand will both provide the spark that is required for the world's economies to get moving again," he said.
Dr Gonzi said that the US President pointed out that hard decisions had to be taken.
"We all know this. Even Malta, the smallest EU member state, knows that there are hard decisions that need to be taken, some of them might not be popular, but we've gone through all this in the past years, and we know that there are hard, difficult decisions to be taken. It is necessary for us to take them, postponing them will only create further problems.
Both President Obama and the EU presidency agreed that we need to take decisions to address the challenges we have. It's not just the economic stimulus package but it's about energy and energy saving, alternative sources of energy. All of these are also related to the new economy which is emerging in this new situation. The assessment is that out of this crisis a new economic order is going to emerge. A pillar of this new economic order is going to be energy. This will go towards alternative energy.
"This in a sense is good news because it will remove old dependencies on types of fuel and go into new areas which will make the planet cleaner and therefore address climate issues which are so important for Malta," he said. The Prime Minister pointed out that President Obama said he wants the US to be a leader in climate change issues.
"It is no longer just Europe which is now going for very ambitious targets in carbon footprint reductions, using more alternative energy, increasing efficiencies, but now also the US. So the two are competing with each other to be the leader in this area. For Malta this means we have to work very hard to meet the targets we set within the EU by 2020. If we don't then we will have to pay a price."
Dr Gonzi said that President Obama's reference at the US-EU summit to the Middle East and stability in the Mediterranean was very important for Malta.
"He also spoke about Afghanistan and Turkey and the importance of dialogue with the Muslim world - which is good news. The President's statement that he wants to listen to and work with the Muslim world is a very positive step forward."
Economist Edward Scicluna is more cautious in his assessment of the G20 summit. "Anybody who has experienced such historical events, where governments pledge generously for what is considered at the time to be a good cause, should not be blamed if he/she thinks that such ambitious promises remain promises. Nobody expects the IMF to be restructured by the end of next year or the international monetary system to be redrafted within a few months, or that all the named tax havens will repent and open up to full transparency in the near future," Prof. Scicluna said.
"However, it must be said that any impressive meeting of any leading group of superpowers, especially as hyped by today's media, is bound to impress. And that is probably what the world needs at the moment.
"The world is impressed that the world's leaders are indeed seen to be doing something about the worst recession we have experienced over the last 80 years. It is the worst synchronised downturn ever witnessed since the great depression. It is agreed that we need to throw everything which comes to hand at the beast for it to retract," he said.
Prof. Scicluna said that when the leaders go back home it is, however, a different story. "They would find that delivering on that financial largesse required of them at the global level might be too much a risk to take at home. It could be that many find that they do not have too much space to manoeuvre. Or they do fear that the inflation risk is not worth undertaking. Or any of the one thousand and one reasons."
Prof. Scicluna, who is contesting June's election as a Labour candidate told The Times Business that although some observers have seen what appears to be some rays of hope coming from the Far East, the risks overall are still on the downside.
"Only history will judge whether the G20 was significant or not in arresting the onslaught of this international recession," he said.
New funding pledges by G20
• $500bn for the IMF to lend to struggling economies;
• $250bn to boost world trade;
• $250bn for a new IMF "overdraft facility" countries can draw on;
• $100bn that international development banks can lend to poorest countries;
• IMF will raise $6bn from selling gold reserves to increase lending for the poorest countries.
Prime Minister Lawrence Gonzi believes the G20 agreement was actually much better than he expected. "I am positive with respect to the outcome of the G20," he told The Times Business.
"The G20 outcome is concrete and focused. $1 trillion are being made available to try and stimulate economic growth at a rate which is faster than the IMF had predicted, and that is what the world needs at this stage. The G20 agreement is trying to address those very issues that seem to have created all these problems in the first place.
"This is why I appreciate very much what was done with respect to credit rating agencies and measures to control financial institutions, hedge funds and all those areas which seem to have not been adequately regulated in the past," he said.
Dr Gonzi, however, offers a word of caution about the G20 agreement: "Perhaps there is one thing that one has to be careful about now, and this is something which President Obama said at the EU-US summit which I attended in Prague. At this stage nobody can really be sure that all this will work. Notwithstanding everything that is being done, the enormous funds for example - never in modern history has anything of this sort ever been attempted - nobody is 100 per cent sure that this will work," he said.
The Prime Minister said the important thing now is to monitor very closely what is going to happen in the world's economies.
"We have to see whether the economies will respond to all of this, whether consumer confidence and demand will start to grow again. If that works we will be fine, but if it doesn't work then we will probably have to sit down again and try to come up with some other measures."
Asked whether he regrets the fact that no joint stimulus package was agreed to at the G20, Dr Gonzi replied: "My position has always been very clear. The world is made up of different economies with a lot of variables or rather different situations in different countries. Even in the EU - one bloc with common rules - there is a variety of different situations. Malta finds itself in a much stronger situation than other countries, for a variety of reasons, such as the make-up of its economy, the prudence that we adopted in the past years, also because of the size of our economy.
"There are factors which distinguish one country from the other. I strongly believe that one- size fits all solutions is no solution at all. On the contrary it will probably push funds into areas which do not really require them, and reduce funds into areas that should be going into," he said.
Dr Gonzi said Malta has his government has always taken the stand that every country needs to have its own stimulus package designed in accordance with its own economy "to maximise on every euro cent that is invested".
"This is what we are doing in Malta. We began with our budget where we focused our stimulus package into areas that needed help, and now, fortunately for us because we are small and focused; we identified those factories that are in need of help, which we support whenever possible.
"I believe we should leave this flexibility in the hands of every country and their own particular situation and then the sum of all of that comes together. It's like a mosaic where every bit put together - although different - completes the whole picture. If all the individual stimulus packages are actually implemented by each one of these countries, large and small, east west, north, south, then there is a good chance that the economy will start to respond. If all of this creates demand on a global scale, then the global economy will certainly start to recuperate."
Dr Gonzi also said that Malta should be very proud of the fact that an OECD document, included in the G20 conclusions, states that Malta is completely in line with OECD parameters in financial services "and this places us in a very strong position for us to compete".
Dr Gonzi also spoke to The Times Business about last week's EU-US summit in Prague which he attended.
"President Obama made a very clear statement: A strong Europe is a strong partner for the United States and therefore the partnership between the two sides is a priority. This is extremely good news - it has always been like that - but everybody knows that in recent years because of different issues - including the Iraq war - this relationship went through strained time.
"It is good to hear that both sides are determined to build on this partnership. President Obama also made the point that in the present global economic downturn the strong economic power blocs of Europe and the US working hand in hand will both provide the spark that is required for the world's economies to get moving again," he said.
Dr Gonzi said that the US President pointed out that hard decisions had to be taken.
"We all know this. Even Malta, the smallest EU member state, knows that there are hard decisions that need to be taken, some of them might not be popular, but we've gone through all this in the past years, and we know that there are hard, difficult decisions to be taken. It is necessary for us to take them, postponing them will only create further problems.
Both President Obama and the EU presidency agreed that we need to take decisions to address the challenges we have. It's not just the economic stimulus package but it's about energy and energy saving, alternative sources of energy. All of these are also related to the new economy which is emerging in this new situation. The assessment is that out of this crisis a new economic order is going to emerge. A pillar of this new economic order is going to be energy. This will go towards alternative energy.
"This in a sense is good news because it will remove old dependencies on types of fuel and go into new areas which will make the planet cleaner and therefore address climate issues which are so important for Malta," he said. The Prime Minister pointed out that President Obama said he wants the US to be a leader in climate change issues.
"It is no longer just Europe which is now going for very ambitious targets in carbon footprint reductions, using more alternative energy, increasing efficiencies, but now also the US. So the two are competing with each other to be the leader in this area. For Malta this means we have to work very hard to meet the targets we set within the EU by 2020. If we don't then we will have to pay a price."
Dr Gonzi said that President Obama's reference at the US-EU summit to the Middle East and stability in the Mediterranean was very important for Malta.
"He also spoke about Afghanistan and Turkey and the importance of dialogue with the Muslim world - which is good news. The President's statement that he wants to listen to and work with the Muslim world is a very positive step forward."
Economist Edward Scicluna is more cautious in his assessment of the G20 summit. "Anybody who has experienced such historical events, where governments pledge generously for what is considered at the time to be a good cause, should not be blamed if he/she thinks that such ambitious promises remain promises. Nobody expects the IMF to be restructured by the end of next year or the international monetary system to be redrafted within a few months, or that all the named tax havens will repent and open up to full transparency in the near future," Prof. Scicluna said.
"However, it must be said that any impressive meeting of any leading group of superpowers, especially as hyped by today's media, is bound to impress. And that is probably what the world needs at the moment.
"The world is impressed that the world's leaders are indeed seen to be doing something about the worst recession we have experienced over the last 80 years. It is the worst synchronised downturn ever witnessed since the great depression. It is agreed that we need to throw everything which comes to hand at the beast for it to retract," he said.
Prof. Scicluna said that when the leaders go back home it is, however, a different story. "They would find that delivering on that financial largesse required of them at the global level might be too much a risk to take at home. It could be that many find that they do not have too much space to manoeuvre. Or they do fear that the inflation risk is not worth undertaking. Or any of the one thousand and one reasons."
Prof. Scicluna, who is contesting June's election as a Labour candidate told The Times Business that although some observers have seen what appears to be some rays of hope coming from the Far East, the risks overall are still on the downside.
"Only history will judge whether the G20 was significant or not in arresting the onslaught of this international recession," he said.
New funding pledges by G20
• $500bn for the IMF to lend to struggling economies;
• $250bn to boost world trade;
• $250bn for a new IMF "overdraft facility" countries can draw on;
• $100bn that international development banks can lend to poorest countries;
• IMF will raise $6bn from selling gold reserves to increase lending for the poorest countries.