Okay, I think we can start.
It's my great pleasure to moderate
this very, very important session,
which I have done for a number of years,
and I've always enjoyed enormously.
Whether the panelists have enjoyed
as much as I have done is,
of course, an open question.
Maybe that's why I'm invited back.
The issues, obviously, in front of us
are of enormous interest and importance.
Before I introduce the panelists,
not that I think they need much introduction,
I will just say it out very briefly
where I think of what my sense of where we are
in this World Economic Forum and the issues
that we are going to have to address
in thinking about 2012 both what might happen
to the economy and the big policy questions.
The agenda is very long.
We will do our best to cover it,
and we will certainly leave some time
for questions and answers.
My sense of the mood in Davos is that
people are feeling relief in the way
that somebody was just being reprieved from
hanging, feels a relief,
that instead of facing the imminent prospects
of catastrophe, there is a sense that
things are being done which have eliminated
very substantially the immediate risk
of disaster particularly in Europe,
particularly because of the activities of the
European Central Bank.
They're not exclusively so, and that therefore
we can start thinking about
the slightly longer term which means
at least a few months and perhaps even longer.
But, at the same time as the IMF reminded us
this week,
the prospects for this year look pretty bad.
They have downgraded global growth
and developed growth in particular,
very significantly growth,
if I remember correctly, down to 3.3%,
and with the Eurozone now expected
to be in recession.
So the long story of difficulty,
particularly in the developed world,
what I think of as the great deleveraging
which is now following a financial crisis
again four and a half years ago.
Remember how long we have been in this
and nobody can say that we are through it.
So we're not even clear that we're through
the half way.
This is an incredibly long process
we've been in with recurrent crisis
and now increasing concern of course
about sovereign debt,
quite particularly in the Eurozone where the
stresses have been very, very extreme.
So that's one part, the downgrading of growth
as a result of what, I think,
Madame Lagarde has referred to as self-
inflicted wounds by the developed countries,
and we all know what she's referring to.
At the same time, and I just like to remind
you one or two statistics,
the developments in the rest of the world,
above all in the emerging world,
have been quite staggering.
If you go back to the September, October 2011
World Economic Outlook,
and you looked at the IMF's forecast for 2012
and converted this back to a 2007 base,
so that's just when the world economy
was moving into crisis, and you ask yourself
what has happened to the economies of the
world,
as the IMF forecasted from 2007 to 2012,
you will discover that according to the IMF
forecast, over that period China's economy
will expand by 60%.
The Asian developing and emerging countries
which is, I would remind you,
half of the world's population
will expand by 50%,
the emerging world by about 35%,
and the developed world by essentially zero.
So these five years has seen the most
extraordinary and unprecedented
speed of transformation of the relative weight
of countries.
So, in addition to this great deleveraging, 
there is this great convergence.
These two processes are shaping our world,
and it's obviously what we want to focus on.
So with that little introduction,
let me just introduce you to the panelists.
Starting on the far left is Robert Zoellick,
of course, president of the World Bank Group.
The World Bank has been a frequent member
of this panel.
Next to him is Governor Mark Carney
from Canada who is also, now, chairman, is it,
of the Financial Stability Board responsible
for the regulation of our financial system.
Next to him is Deputy Prime Minister,
is this not working?
Oh, that's good.
Sorry, I had no idea.
Let's hope that's not true for everybody
because it's going to get very awkward.
Next to him is Deputy Prime Minister
Ali Babacan who is of course being responsible
for economic policy in Turkey for a long time.
Next to him is Christine Lagarde
who has been previously on this panel
as Finance Minister of France,
but of course she's now Managing Mirector
of the International Monetary Fund.
Next to him is Mr. Donald Tsang who is Chief
Executive of Hong Kong.
Next to him is George Osborne, Chancellor of
the U.K., Chancellor of the Exchequer.
And finally, Minister Furukawa who is minister
of Financial Economic Policy of Japan.
For some reason that I cannot even begin
to imagine,
there is no representative of Eurozone
government on this panel,
and I certainly donג€™t take it personally.
So I'm going to start off then, with you,
Christine Lagarde,
if you could set out how you and the Fund now
and the see the world
and how concerned you remain, despite
some of the things,
the improvement in tone about the world
economy in 2012,
and the issues that confront us.
Thank you.
Thank you very much, Martin.
Does that work?
Great.
You've asked us on the panel to focus
on solutions, and I will try to do that.
But I would like to preface that
with just three comments.
Number one, no one is immune
in the current situation.
It's not just a Eurozone crisis.
It's a crisis that could have
collateral effects, spillover effects
around the world, and we'll hear from others,
but what I have seen and what we're seeing
in numbers and at forecast is that
no country is immune and everybody
has an interest in making sure
that this crisis is resolved adequately.
Number two, I would say that now is the time.
There has been a lot of pressure building
in order to see a solution come about.
And number three, I'd like to just refer
to Churchill, if I may, who used to say,
that we have the tool; we must do the job.
The IMF is one of the tools,
but we need a toolkit to actually address
the crisis at it is at the moment unfolding.
And focusing on solution, Martin, if I may,
I'd like to address the European current
situation particularly the Eurozone.
Then what other countries need to do as well
because as I said it's a toolkit
and it's not going to rely exclusively
on one single region,
and number three what the IMF can do.
Turning to Europe, and to the Eurozone
in particular, the IMF sees three necessary
solutions to the current situation.
The first one is about growth,
and growth will be critical for many reasons.
To deal with the job issue, to deal
with the fiscal consolidation necessity
and I'll come to that in a second,
and to just encourage value creation
in a part of the world where, as you said,
in the last five years there's been pretty
much zero growth.
And growth, in our view, is predicated
on essentially two components,
monetary policy aside,
which is obviously another one,
but I would like to focus on the other two.
And the first one is combination of liquidity
so that banks, in particular,
have sufficient liquidity and clearly
what Mario Draghi had of the ECB has done
in the last weeks of December is critical,
but also, more importantly, at the moment
a decent firewall.
There is work underway.
There is progress as we see it,
but it is critical that the Eurozone members
actually develop a clear simple firewall
that can operate both to limit the contagion,
and number two, to provide this sort of act of
trust in the Eurozone
so that the financing needs of that zone
can actually be met,
if the finances of the world are not
interested in that zone.
And the second aspect that will actually
build growth in that zone
is, obviously, competitiveness,
and competitiveness is a very important factor
that needs to be tailor-made,
that needs to be customized to the country
as is fiscal consolidation.
And if I can deliver a very clear message,
Martin, on this one is that
we are not suggesting that there should be
fiscal consolidation across the board
without differentiation,
and without specific treatment adjusted to the
specificities of the country.
Some countries have to go full speed ahead,
and do that fiscal consolidation that is so
much needed.
I would include in that category certainly
those countries that are under program,
and a few others.
But other countries have space, have room
and can do something,
and there are not many of them.
I can think of one or two.
Those ones, they should certainly explore
what they can do to actually boost growth
in their respective quarter, in order to help
themselves,
but also in order to help the rest of the
zone.
Just like competiveness has to be tailor-made,
and adjusted
to the weaknesses and strengths of a country
to its comparative advantages,
and to the demand that is addressed to it,
equally, the fiscal consolidation that is
needed, needs to be adjusted,
needs to be customized to the country
and cannot be just across the board,
because, otherwise, it would simply strangle
the little growth that there is,
or that there could be.
That's as far as the growth firewall
and liquidity.
The third component that we see as a necessity
for Europe is clearly more integration.
I've said it.
I will be happy to repeat it.
In addition to having a monetary zone,
the Eurozone needs to develop this fiscal
consolidation compact
that is currently in the work and that we hope
will be strengthened and validated on Monday
at the Leaders' Summit and further pursue it
because it's a process.
I certainly agree with Chancellor Merkel
that it's not a sprint, and so it's a marathon
but one along the way of which there
needs to be deliverables.
Turning now to the U.S. and Japan
because this session cannot be all about
Europe, Europe, Europe although the Eurozone
has to do very important things, very quickly.
But turning to the U.S. and Japan,
in particular,
those two countries are running higher
deficits than the Eurozone
on a consolidated basis.
They run very high debt, completely different
structure
depending on whether you sit in Japan, the
U.S., or the Eurozone.
But equally, those countries have to anchor
in the medium term what they're going to do
about this constant regular deficit
in the last few years
and how they're going to turn around the debt
trajectory that is theirs at the moment.
Emerging market economies and particularly
those that are in a surplus situation,
they have to continue what they have begun
to do,
which is to actually re-concentrate on the
internal market, on the domestic consumption,
rather than rely too exclusively on export
and investment.
That could apply equally to advanced economies
that are in a surplus situation.
So that's pretty much what can be done
by the Eurozone, in particular,
by the rest of the world.
I recognize that is a very sketchy, Martin,
but in the interest of being brief
and to that point,
I've decided to be a little bit elliptic.
What the IMF can do, because the IMF is one of
the tools that I referred to earlier on,
is clearly to act as an aggregator of trust,
as a propagator of stability,
and certainly in that process
needs to demonstrate the multilateral support
of its membership to actually accommodate
and supplement some of the situations,
not in the Eurozone, but in any country
that is a member of the IMF.
There will be needs in the Eurozone,
no doubt about it,
but in Central and Eastern Europe
there will be needs as well.
And in other countries,
including in low-income countries,
including in middle-income countries,
there will be needs.
Short-term for some, longer-term for others.
And it's for that reason, Martin,
that I'm here with my little bag to actually
collect a bit of money.
Thank you.
I take it that this is not a plea to the
business leaders for a philanthropic gesture.
But we will certainly come back to the
question of IMF resources
after the introductory remarks.
I'm going to turn now to Governor Mark Carney,
how you see the world economy?
You are presiding over an economy
that seems to be happily immune,
presiding in the monetary sphere, obviously.
A number of people said that the striking
feature of this crisis,
is all the countries that have recently had
crises, I mean in the last three decades,
have managed to avoid a crisis this time and,
actually,
at least two of them are represented it here.
But I also would like your view on how you see
the financial sector more broadly
in your present role and its resilience,
because that's been an enormous concern in the
last few months,
and, I think, it can't of really gone away
just because Mario Draghi has decided
to provide more money than before.
So what's your perspective on where we are
in those two respects?
Okay, thank you, Martin.
Just, in terms of overall outlook,
I absolutely agree with the IMF.
I mean this is a 3% growth world,
roughly a 2% United States, and 8% China;
China decelerating but to a still strong pace.
Importantly in that though, is the impact
of the Eurozone Crisis in our view,
the impact of Europe.
The level of global GDP is about 1% off the
level of global GDP at the end of 2012.
So we're all going to feel this, and that's in
a world where this crisis is contained,
and containment is different than resolution.
So why is there the impact?
There's an impact in terms of the order
of austerity.
In Europe, we have Europe down 1%,
a little more than the IMF for 2012.
But, secondly, through financial channels,
and I'll get to that in a moment.
To go back to where you started,
the very beginning note,
we are in a great deleveraging
in the advanced economies,
and it's very hard to delever unless
you're increasing leverage somewhere else.
And there's only really two options in the
world,
the corporate sector and the emerging markets
as a whole,
and we'll hear more directly from colleagues
on the latter.
So I'll focus on the corporate sector
and the link with finance.
I think part of the mood here in talking
directly to the real economy,
is there's a lot to do,
but there's a great deal of uncertainty.
We've contributed to that from our respective
roles and our respective jurisdictions.
I'll give you one fact or anecdote,
if you will.
The emanated backlog at major investment banks
is at all-time high.
So the number of potential transactions
that CEOs are contemplating,
and the equity backlog is also
at an all-time high.
The actual execution of these deals
is rightfully low.
Anyone who has seen the most recent results 
of the major investment banks would know that.
The point is there's things to do
but people are understandably pulling back.
Now, you referenced the measures of the ECB
in December and upcoming,
absolutely taking tail risk
out of the financial system
which is incredibly important.
There is not going to be a limonite style
event in Europe that matters.
But that is different than having a well fully
functioning banking system in Europe,
a banking system that's lending
to the real economy.
We see deleveraging effects,
perspective deleveraging effects.
I donג€™t think we're really seeing this yet,
in a number of key financial markets,
in project finance, in trade finance,
in the commodity markets there is a direct
pullback by European institutions.
We also, I think we should be conscious,
that the majority if foreign holders of
emerging market debt are European,
and some of this pull of capital back into
Europe,
has directly affected emerging market capital
flows.
So we're getting a perverse flight,
maybe not to quality but flight home bias
from where we need growth and need capital
to where it's being repaired.
Overall, in terms of where the financial
system, and I'll conclude with this,
the system is much healthier as a whole
than it was in 2008.
Capital is increased in virtually all
jurisdictions although the least in Europe,
which is one of the fundamental issues,
liquidity is up substantially in all jurisdictions.
In fact, there's probably too much liquidity
being held directly in the financial sector.
Those are the positives and a number of
structured markets
and other markets that caused problems have
diminished very much in importance.
The other way that financial resilience
has increased though is less positive,
and I'll finish on this,
which is that the contingency measures that
institutions are taking
for the possibility of a more adverse outcome
in Europe and elsewhere,
are holding back their willingness to provide
finance across a range of projects.
So implementing Christine's solutions,
will make a real difference in terms of
corporate attitudes, I think,
but also in terms of the direct supply of
capital.
Thank you very much.
One of the issues is, I think, very much
raised that we should perhaps come back to,
which a lot of the bankers complain about,
is that they're being simultaneously immensely
to improve their capital ratios,
and to increase their lending.
So I'm sure you'll want to address that
sort of concern,
and indicate how completely coherent and
cohesive and together
the policy direction is for the world economy.
Let me now turn to you, Chancellor.
You are in the slightly strange position
of being the nearest we have
to somebody who can speak for the Eurozone.
The irony will not be lost on anybody.
But, anyway, you are in the meetings on this.
I'd like you to think a bit about from your
perspective where the U.K. is in this context,
what the options for the U.K. are, and also,
particularly,
where you personally think the Eurozone has
got to,
and what you might add to Christine Lagarde's
indication of the priorities.
One of the issues there, perhaps we can touch
on now, or perhaps come to later,
is what you think the role of the IMF
needs to be in that crisis?
Thank you, Martin, and yeah,
probably, the only time in my life I intend to
speak for the Eurozone.
People have commented on the mood
at this conference being quite somber,
but having been here for a couple of days,
people have also pointed out that actually
people are slightly more optimistic
at the end of the week than the beginning,
even if, as you put it, Martin, and that's
because they haven't been hanged.
I think, of course, the economic challenges
are very self-evident,
to particularly western economies,
particularly European economies,
and the U.K. is certainly not immune to that.
But, I think, if I would focus on three things
which I think lie within the hands of
policymakers,
positive actions that would turn a more
optimistic mood
at the end of an early week of January
into a more optimistic outlook for the world
economy at the end of this year,
I would focus on these.
I mean, first of all, the Eurozone.
I think it's important to recognize
that for elected politicians to achieve what
has already been achieved in the Eurozone,
has been a real act of courage.
To pull your national resources into a common
fund to help other countries
is very controversial.
To undertake austerity measures usually gets
you kicked out of office,
unless you manage that correctly.
To undertake difficult structural reform
of pensions or labor markets,
is, again, very controversial.
And a lot of these things have happened
over the last 18 months within the Eurozone,
and I think we should credit that.
But I think more needs to be done.
I think the Eurozone understands that,
and I think it needs to happen in the next few
weeks.
And the two things I would focus on are,
first of all, the creation of this firewall.
It's been much talked about, but I think that
is now a key to unlocking further confidence.
And the second thing, which I'm not sure
has been mentioned yet, is Greece.
I mean, the fact we're still in the beginning
of 2012 talking about Greece again.
And I think itג€™s a sign that this problem
has not been dealt with,
that the danger here is that the tail wags
the dog throughout this crisis.
In other words, the inability to deal with
the specific problems in the periphery
causes shockwaves across the whole European
economy and the world economy,
and concluding the deal that will lead
to a more sustainable situation in Greece,
I think is, actually, fundamental to stability
in the Eurozone.
But I think those things can be done,
and I think they can be done over the next
couple of months.
The second thing I think that needs to happen
is I think policymakers need to get a greater
grip on the deleveraging process.
Now, part of that is a deleveraging of public
sector debt,
and, obviously, talking my own book I think
we've demonstrated in the U.K.
that even if you have a very high budget
deficit,
and we have one of the highest in the world,
a credible plan to deal with it can command
market confidence,
give you very low rates in the market,
and provide a platform of stability in an
otherwise very volatile time.
I think the other thing that we all need
to better understand is
the deleveraging happening in the financial
system,
an inevitable consequence of a financial
crisis in a balance sheet recession.
But I think the point that Martin made
is something I would like to see more
attention to from policymakers
over the coming weeks, which is the sort of
balkanization of European finance
which has happened as a number of institutions
and individuals
have taken actions to protect themselves
from the tail risk of things going wrong in
the Euro,
and what the impact will that be on the
European economy and how that can be unwound,
which I think is very important.
And,I think,one of the things we can all do is
also provide a regulatory certainty this year.
Of course, it's inevitable after a big banking
crash
that you consider how to avoid these things
happening again, and certainly in Britain,
and maybe we can come on and talk about that.
We've done a lot of work in looking at how we
can better protect our banking system,
work that Martin himself was involved in.
But, we now need to move to a point where we
tell everyone what we're going to do,
give clarity on the rules.
I would include the United States in this
with the Dodd-Frank legislation,
and, again, provide some stability
which will provide a platform for investment.
The final point I'll make is that, I think,
we need to restore some confidence
in the ability of the multilateral
organizations to work effectively.
We can come on and talk about IMF resources,
and I think there is a case for increasing
IMF resources, and, I think, that would also
be a way of demonstrating
that the world wants to help together solve
the world's problems.
But I think that's also an important task
ahead for the FSB and Mark this year,
and on trade, which I continue to think
is one of the most disappointing features,
at the moment, of the world that we have not
been able to pick out the free trade agreement
that we know would act as a significant
economic stimulus,
not just for the real benefits it would bring,
but also because it would demonstrate that we
are able to take collective action
for the common good.
I think in the absence of that,
I think it is actually positive
to see more regional trade agreements
in the European context,
the deepening of a single market and bilateral
agreements, in the case of Europe,
bilateral agreements between the European
Union and, for example, India,
which, I think, would again demonstrate that
we are not retreating into protectionism,
but actually moving forward and opening up
markets.
All those three things are within the hands
of policymakers.
They are not things that we require acts of
God or unguidable forces of nature to deliver.
These are all things that people,
such as the people in this room,
can get together this year and deliver.
Thank you very much.
The issues you've raised we'll absolutely
come back to you if it's at all possible,
pretty well all of them I think.
Let me turn to you now,
Deputy Prime Minister Babacan.
Perhaps, I'd very much want you talk about
your own country in the region,
lots are going on.
What is the economic significance of that is
obviously a very big issue.
Also, obviously, you have a...
I don't know whether we can describe this a
privileged position,
but a ringside seat on the Eurozone, a
disaster.
Sorry, I didnג€™t mean that, events,
and I know you have use on it.
Also, particularly relevant because you, of
course,
had a financial crisis quite recently in the
last decade, and has gone through that, and
has coped with this crisis from this point of
view remarkably well.
So, no doubt, you have lessons to teach us
as well.
So what is your perspective on where we are?
Well, let me talk about the current global
economic situation and, most specifically,
what is going on in Europe and Eurozone.
And if we really want to see sustainable
growth, job creation, employment and so forth,
there is one very important concept
which we, I think,
have to emphasize over and over again, and
that is confidence.
When we donג€™t see a medium of confidence, when
consumers donג€™t have trust for the future,
they donג€™t spend.
When corporations donג€™t have confidence,
they donג€™t invest,
and when banks have doubts about the future,
they donג€™t lend.
And when these donג€™t happen, the economy
stops, financing channel stops,
and we donג€™t see growth.
And how to attain confidence,
how to regain confidence should be probably
at the core of the policies
in many, many countries.
For those countries where public debt
is a source of concern,
we don't think that fiscal stimulus will work.
If a country already has a high debt,
and if this debt creates lots of doubts in the
markets,
simply trying to spend more and have some kind
of growth through just government spending
is probably not going to work.
And in Eurozone there has been
some unfortunately trials in 2008, 2009,
trying to give fiscal stimulus and then have a
very unfortunate result at the end of the day.
For those countries where public debt
is reasonable,
and for those who have some fiscal space,
maybe there might be some efforts.
But, what is most important here is about
fiscal policies, there is an asymmetry.
It is always easy to lose on fiscal policies.
So when in 2008 and 2009,
many European governments announced fiscal
stimulus programs.
They were helped and they said, Okay, this is
going to solve the problems.
But then, it is time to tighten the policies,
it is very, very difficult.
It has many costs.
It costs the fortunes of the leaders.
It costs the fortune of the political parties
in many countries.
And thinking about the fact
of that sensitivity of the fiscal policies,
it is important to be on the prudent side when
it comes to budget and public debt
and so forth.
Once keeping the fiscal policy
with a prudent phase,
then for countries it is very important
to have a very clear strategy
and communicate the strategy very well
so that the strategy is owned by the masses.
Because if there is no local ownership
of the policies,
then probably those policies will not work.
Do people understand?
Do citizens of that country understand?
Do they really understand the necessity
of the steps, maybe difficult steps
that is needed for the future?
And then having a medium-term region is also
very important.
Now, I have been attending many, many
discussions in Davos,
and they have been talking too much
about the year 2012.
But if we are going to talk about growth
and employment,
it is not just a single one year we have in
front of us.
We have 2013, 2014, and for some policy
action,
it might be hurting growth in the short-term
today,
but it may generate more and sustainable
growth later on.
So we should probably look at growth
and job creation with a medium-term approach.
And the governments announcing these medium-
term credible programs,
is going to be very, very crucial to bring
some predictability about
what's going to happen.
If the companies or the financial sector
donג€™t have any idea about
what's going to happen in this year in the
United States,
if we have all big doubts about what's going
to turn out in the Eurozone this year,
and if all the mass media is broadcasting is
this, how to expect people to spend more,
how to expect companies to continue investment
or hiring people,
and how to invest the banks, although they
have much liquidity in their hands
to do their function of lending.
So the homework to be done country by country
is going to be very important.
So every single country should keep his house
tidy and clean.
And then, international organizations,
they are important tools,
but they are not a substitute for the homework
to be done in every single country.
A more coordinated action is absolutely
necessary in the Eurozone.
We hope that the Six Pack fiscal compact,
we hope that this works.
I think it's absolutely necessary to implement
this in the Eurozone without any slippages.
And also, G-20, I think has a big role also,
probably underutilized,
but an important role to have a better global
coordination of the policies.
And it is very important today, during this
year for the countries within G-20
not to just follow their own national interest,
but also think about the global outlook, feel
the global responsibility,
because, as Christine said at the very
beginning, we are living all together,
and if there is a serious collapse anywhere
in the world, this is going to hurt all of us.
Nobody is going to have a better position
because of a collapse,
a serious collapse elsewhere in the world.
So, specific to Turkey, as Martin has asked,
we have been very prudent on the fiscal side.
In 2009, we announced a very prudent,
tight fiscal policy,
a medium-term fiscal program
to even further down reducing our deficits,
and many people have big doubts
because they told us,
look at Europe. Look at everyone else.
Everybody else is increasing spending and you
are doing the reverse.
But it paid off very well.
The confidence was built up.
Our growth rate was 9% in 2010, 8% in 2011.
We have been actually tightening things
on the monetary policy side,
and also on the banking side
to contain the growth, to prevent overheating,
or to keep our country under control
and so forth.
So we have followed quite a different path
from the rest of our European neighbors,
but we have got also quite different results
at the end.
Thank you very much.
Let me turn now, last to Asia and would start
with Japan and Asia,
with you, Minister Furukawa, please.
I speak English.
You will speak English? Yes.
Thank you very much.
I would like to start with the landscape 
of the Japanese economy.
We accept a relatively stable economic growth
rate and low unemployment rate,
and we are determined to continue to the
financial stabilization of the Eurozone.
The current government debt crises in Europe
inevitably affects on the global economy.
With this in mind, we expect that Europe
makes it at most effort
to manage the challenges and endeavors to
establish a firewall to calm down the market.
Japan has been supporting this effort
as a major purchaser of EFSF bonds,
country holding 16% of the outstanding issues.
Once further engagement of the international
community is required,
Japan will collaborate closely with other
countries and relevant parties,
in supporting Europe's firms' actions.
However, I have somewhat of a concern
that the crisis may also have a financial
effect outside Europe
especially on the capital shortage in Asia.
Japan will intensively concentrate its effort
to stave off the capital outflow,
and will proactively commit to Asia's
sustainable growth.
The issues we as a country are facing are not
limited to the debt crisis in Eurozone.
I'd like to point out more common
and underlying issues.
This year, social connectedness and trust
will be tested all around the world
because of a number of destabilizing factors.
These factors are low economic growth rates,
high unemployment rates,
and contentious debates in election campaigns.
In confronting these challenges,
the Japanese government is now working on
composing a new growth model
that pursues three elements altogether namely,
the economic growth, social inclusiveness,
and environmental sustainability.
Japan will closely collaborate
with the economies of Asia
and the OECD countries in this effort.
We should pursue this dynamic and inclusive
growth
because mere economic growth will not resolve
the dissatisfaction
in the current economic system.
As you witnessed, last year's Occupy Wall
Street,
and a popular uprising in many countries
around the globe are typical examples.
Following this annual forum,
I'm looking forward to elaborating for further
discussion in the international community.
And lastly, I would like to comment about
Japan's fiscal deficit issues.
It's important to note that Japan's fiscal
deficit is a pressing issue
in terms of its volume.
At the same time, it's also important to note
that vast majority of the debt,
is financed by domestic saving.
And we donג€™t think this structure will cause
immediate crisis.
However, tackling fiscal consolidations
is a pressing challenge we cannot leave behind.
Our government has been working on these
issues since fiscal year 2010,
aiming to have the primary balanced debt
to GDP ratio in five years,
both raising the consumption tax rate
in a phased manner,
and promoting economic growth through
implementing the strategy
for rebirth of Japan, a key components, and
they are the wheels of the same car.
Thank you.
Thank you very much.
I'm very glad that you brought in Japan's
fiscal position,
since we've had some very strong positions on
this absolutely crucial issue of fiscal
austerity,
which a number of people have referred to.
I just like to point out that I have been
in these sessions for about 15 years,
and everyone that somewhat has been concerned
about the mounting tide of Japanese debt,
which is, of course now far and away, the
biggest in the world, relative to GDP,
and widespread concern about how long
this can go on.
And every year we discover that the Japanese
government's long bond rate continues to be,
or has been now for a very long time,
roundabout 1%, which is a problem
which, I suspect, many other countries
would quite like to have.
So this is quite a complicated issue.
How fiscal policy interacts with the economy
is a very, very complicated issue,
very situation-specific.
That's obvious.
And getting that situation right
is very crucial,
as Christian Lagarde has mentioned earlier on.
Now, I'm going to turn to Donald Tsang
to talk about
how you view the global economy from your
perspective,
particularly looking at the Asian context
which has already been stressed by others,
including Minister Furukawa.
Please.
Well, according to the IMF latest forecast,
Asia is going to grow by over 7% in 2012.
China, one of the bigger economies in Asia
is going to grow by more than 8% this year,
and everything seems robust and rosy despite
what is happening in Europe and America.
And in the case of Hong Kong, we have balanced
our books, we have zero debt,
and I have reserved what you're going to see is
over two-year's spending,
and we have almost full employment
at the moment.
Things to look very nice.
I have been in public service,
most of which involved in public finance for
over four decades.
Let me share with you, I've never been as
scared as now about the world.
What is happening in Europe, looking back
what experience was in the 1980s,
the crisis we have and we had
and the crisis we had in 1990s.
This is a very big issue.
First of all, I agree entirely with Christine
that nobody is immune.
We are all connected with each other.
Look at the speed of spread of contagion.
When we dealt with the Asian financial crisis
in the late 1990s,
we were dealt largely in the Asian issue.
It was very much, we're left to ourselves,
and we overcame it.
But it never spread to other areas.
Now, it's very different.
In 2008, Ireland suddenly started
reintroducing a way
in which to protect the bank's savings.
Almost two days afterwards, the whole world
followed suit, including Hong Kong.
In other words, we are very much after ten
years of the Asian financial crisis,
much more interconnected than before.
Okay, in the case of bank exposure,
in case of Hong Kong, we're hardly exposed
to European softened debt issue.
We've checked all our banks.
We've done stress tests.
It seems all right.
But what about the counterparties?
What about the banks we deal with in Europe?
What about their own clients who are in
serious trouble?
In other words, we do not know how deep this
hole would be
when the whole thing imploded on us.
So looking at America now,
I do not see a radical solution emerging
before the presidential election.
So 2012 is a critical year.
Each one of us has to look at ourselves
and what we can do, most importantly,
to protect the people of ourselves
and protect the people of the neighbor,
how we're able to secure the jobs,
how we're able to go through life this year.
Then I'm going back to experience elsewhere.
Maybe it's not relevant to the rest of the
world,
but I can share with you some of the things we
have found.
First of all, in Asian financial crisis,
we stopped the fire.
We did something rather extraordinary at that
time.
I went to the stock market, I bought some
shares.
It was merely condemned and castigated
by all of the world,
by Americans, by some Europeans,and with
sympathy elsewhere.
But what I did, paled in significance what we
have seen other people have been doing.
What is happening now in the world,
what is in Europe now,
you need decisive action,
you need to overkill.
That's the reason why I agree entirely
with Deputy Prime Minister of Turkey.
You need to inspire confidence.
That confidence must come in decisive action
of governments working together,
and doing it quickly.
Maybe, two months ago, we can face Greece
and settle with the 30% haircut.
Now, even 30% is not easy.
It's not easy to settle.
Seventy percent maybe is off the books
as well.
So do it quickly, and we need resolution
and decisiveness.
The second thing we have discovered is
when we deal with the Asian financial crisis
we deal with an institutional issue.
We sorted out the banks.
We sorted out the intermediary, the stock
markets exchanges,
the regulatory regimes, and so on.
We have forgotten the people.
There were five years of painful deleveraging
which took place in Hong Kong.
Assets were depreciated 60%.
Somebody owned a home, it used to be $5
million, and suddenly,
he discovers it's only worth $2 million.
Negative assets was a very widespread issue.
Immediately, the pessimism pervades the
society,
and you have serious problem on your hands.
In other words, you need to have quick fix.
In a case like this, I think we have to look
at not only in the funding of our banks.
You must look at SMEs.
We did very well in 2008.
We maintained jobs.
We secured the firms because we underwrote
all the loans in the banks.
We guaranteed all the banks, continued lending
to your SMEs with a good reputation,
good track record and making sure
they will survive.
And they did.
At the end of the day, the default
was almost zero.
As the government, I didn't put up anything.
I just offered them opportunity
to do this thing.
And then you must help the poor,
making sure they exist through life.
Help them, re-schedule their loans, 
their mortgages,
making sure they are able to pay 
electric bills and so on and so forth.
So we have incentive per package valued
at more or less 6% to 7% of our GDP,
over a period of two or three years.
We have got the money to do it.
But, even you donג€™t have the money to do it,
find the money to do it,
making sure the grassroots are at ease
and they have the jobs ready for them.
And for that reason, you then have confidence
there and you have domestic consumption going.
So how we're dealing with all these macro-
issues, the rebalancing of economy,
the prudential supervision, all the things
you need to do with the banks and so on,
you must make sure at the end of the day
2012 is a critical year.
If you can't get through it, the rebalancing,
the effect of that will come after 2012,
almost in two years after that.
You have to get through 2012.
And remember, you have to deal with the
people.
This is why we serve.
This is what public service is all about.
Thank you very much.
I think you made some incredibly important
points.
First, about the fact that somebody like you,
an observer like you is that frightened,
which I suspect is very wise and shrewd.
I'm very, very concerned about the
recrudescence of complacency
over relatively small steps that have been
taken.
Please donג€™t go away and think this is
fixed, in any way.
Second, perhaps I can put this slightly
different language.
You were at the epicenter of the Asian
financial crisis,
the last really big financial crisis.
And the western world gave you lots of very
useful advice,
some of which was almost relevant such as
speed of action and decisiveness and so forth.
And we can truthfully say,
rather, truly no one when will disagree that
the western world, broadly,
has succeeded in failing to take its own
advice pretty comprehensively,
which is why four and a half years after this
started,
we're still in such an impressive mess.
And four and a half years after the Asian
financial crisis,
Asia was recovering fantastically,
a very, very important contrast,
though of course it was a slightly
different problem.
That gives a cue, I think, to Bob Zoellick
to tell us how he sees the world.
What are the positions of developing and
emerging countries in all this?
We talked about capital being pulled back.
We've looked at the failure to finish
the Doha Round, which you started.
How concerned are you about
where we've got to,
and what should we be thinking about
for this year?
Well, thank you, Martin.
And, I figured, at this point in the panel
as we have,
I think you've set out the issues very well,
so I wanted to try to offer
a slightly different perspective.
So I'll share three observations.
First, when I was at the Cannes G-20 Summit
in November,
I watched as the emerging-market
heads of government
were observing the European heads of
government.
It was quite striking, as many people here
will recall,
this is right after one of the European
summits
where it looked like there was progress.
You had the call for the Greek referendum.
And frankly, the European heads of government
were in turmoil.
And the emerging-market leaders were watching
with feelings that seem to me to be,
first, a sense of confusion, then frustration
and then some sense of overall disdain.
So one aspect of this, is this has got to have
effects on influence,
perceptions of power in the world that are
going to be quite significant
for years to come.
Second observation builds a little bit
on what Deputy Prime Minister Babacan
and Donald Tsang mentioned.
A couple of weeks ago, there was one of the
first of the G-20 deputies' meeting.
And, while many topics were discussed,
I'll share with you the major takeaway
that I had from the report,
which is that the emerging markets
were saying, you know, we encountered this
problem before.
Many of the countries around the room
from the developed side
urged to take difficult reforms.
We took difficult structural reforms.
They're painful. They take political will.
Now, it's your turn.
Get on with it.
And that leads to the third point 
which is,
that whatever we see come out over the course
of this year to next year's,
I think the world is never going to go back
to the way it was.
And your statistics said you started out,
Martin,
I think was with your second point
kind of show some of the significant shifts.
But it's not only a question
of economic numbers,
it's also going to be a question of
perceptions and attitudes.
And what I see in the world economy now
is that emerging markets
are certainly not waiting for the developed
world to get their act together
because they are taking their own steps.
They're not looking as they might have in the
past to the United States or Europe or Japan
for solutions.
And it's a very open question
of who will be the exemplars in this system.
It's not determined.
It's not necessarily some of the rising powers.
But it's an open question that relates
to the last point,
which is that what I perceive occurring is,
as you mentioned,
depending on how you account, you're maybe in
the fourth year of this process.
And there's a danger because there's a fear,
a weariness,
a fatigue that's starting to run into the
political system.
At the same time, people are scared.
There's anxiety. There's joblessness.
And you can start to see the creeping
populism,
home country bias, a sense of separation from
the system.
So in addition to finding some exemplars,
those exemplars are going
to have to play a role in trying to move a
cooperative process forward.
And in some of the side discussions I've had
here with some of the business people,
it's quite striking.
There's no absence of resources
in the international system.
Mark and I were talking about it,
there's a lot of capital to invest.
There's lots of possibilities.
But, frankly, some of these populism,
creeping protectionism,
anxiety about the future possibilities
for investment affects the confidence
and creates a danger of paralysis.
So I simply underscore, Martin,
your key point.
What I picked up in the couple of days
I've been in Europe is,
I'm really glad the ECB took these actions,
but let's not get complacent.
This buys time.
You still have to act.
Thank you very much.
This has raised an enormous number
of questions.
Let's just follow a few of them up.
I'm going to start by looking at the Eurozone
a little bit more
and this question of firewalls and where they
fit in, but it leads to something broader.
I will address this question initially
to Christine Lagarde,
but I know that others
will have some thoughts on this.
Let me look at it from the point of view
of the emerging world.
They are told that the IMF needs enormous
increase in resources,
and it's pretty clear to them
that it's related to the Eurozone crisis.
The question obviously arises,
why should relatively poor countries, which
have been well-managed,
accumulated large foreign currency reserves
contribute large amounts of money
to support a zone which seems to be unwilling
to support itself.
Thank you, Martin.
Four points to respond to your argument.
First of all, no one is immune.
Neither developed countries anywhere in the
world nor low-income countries,
nor middle-income countries.
We've never been so interconnected.
Number two, as much as an investment,
it's also a statement of confidence for the
multilateral process.
Number three, if it is big enough,
it will not get used,
and the same applies to the Euro firewall
for that matter.
And number four, if it was ever used,
it's a very safe investment.
Why? Because the IMF is a highly secured
creditor,
has always been paid back with a return on
investment.
And the reason it is always paid back
is because,
number one, it has significant reserves.
I have to hold 20% of reserve.
And, more importantly, because we never lend
without a program, without conditionalities,
and without a very serious, thorough follow-
through
to make sure that each and every installment
has a consideration
in terms of improvement of the macroeconomic
situation of the country
that takes it back to the market so that it
actually pays back the IMF.
I hope I have convinced you.
First of all, I'm going to see
whether you've convinced the panel.
Mark Carney.
I mean, this is a really big question.
Let's go to the European firewall itself,
which starts obviously with the European
facilities, EFSF, ESM,
which, I think, quite broadly acknowledged,
are currently insufficient in size,
and need to be supplemented.
And that's one of the reasons why
Madame Lagarde is focused on the issue.
And they are not fully functional.
The ESM is much more efficient than the EFSF
and greater focus on that.
But what's the point of these
firewalls themselves?
I mean we should get right to that.
And the first point I want to make
is something you've focused on,
which is there should be an acknowledgment,
first and foremost,
that this is a balance of payments crisis more
than a banking crisis and a fiscal crisis.
There are issues in the banking sector.
There are issues on the fiscal side,
but they are more, products, by-products
of this fundamental issue.
And as the Chancellor emphasized,
one of the disturbing developments right now
is that even with the measures of the ECB,
the European financial system is beginning to
renationalize.
So Italian flows are funding Italian bond
purchases and there's less cross border flows.
That's incredibly inefficient.
And so part of the point of these firewalls
is to address that, and I would submit,
that one of the key elements of this is also
providing some backstop certainty
on bank capital.
It doesnג€™t necessarily have to go in,
it could be contingent.
It could be contingent,
and I'll leave it as that.
But there should be greater certainty
on bank capitals,
so that there is greater certainty
in terms of cross-border flows
because if there's not,
in a balance-of-payments crisis, as you know,
you're restricted.
You're restricted on cross border finance.
It deepens the scale of the downturn and the
effect of countries,
it feeds back onto the fiscal side.
So that's absolutely paramount.
And then the other obvious purpose
for these firewalls
is to provide funding certainty
for the affected nations 
over a reasonable period of time which is
going to be measured in two or three years.
We are still going to be talking about Europe
next year when we're here,
so that some of these reforms, most notably
the structural reforms,
have time to start to bear fruit.
Now, the IMF in the context of more European
resources, more effective facilities,
there is a role potentially for the IMF,
a very constructive role,
not just for Europe but very importantly, as
Christine emphasized,
to provide some precautionary certainty
for the rest of the world during this process.
Chancellor Osborne, if I may ask you about
this, not as a representative of the Eurozone,
at the very least everybody I've heard,
and I've spoken to a number of people
privately and I've had it publicly,
who isnג€™t part of it, isnג€™t inside the
Eurozone,
insist that the Eurozone itself put up more
usable money.
There is sort of a sense that
there is a risk transfer going on,
which is quite unfair and legitimate.
After all, this is one of the richest,
the two biggest economies in the world.
If you look at an aggregate,
it's incredibly rich.
Why should the rest of the world come along
and do this?
There's an additional factor, and I might come
back to this is,
some people feel, and I must say
I'm one of them,
that the IMF has got itself into great
difficulty for perfectly understandable reasons
with some of the programs it's being got into
so that it's only even clear that the IMF
can perform its role well
within this incredibly difficult context.
So what do you think needs to be done
by the Eurozone itself to make it reasonable
to demand or expect a big contribution to
the firewall from outside?
The Eurozone needs to provide a significant
increase in available resources.
I stress both the words, significant increase
and available.
In other words, it has to be a deployable
firewall in that sense.
And, I think, the Eurozone leaders understand
that,
that there arenג€™t going to be further
contributions to the IMF
from other G-20 countries including Britain
unless we see the color of their money.
And I think that is a reasonable request.
Our other requests are that the IMF
is not in any way debased as an institution.
In other words, all the things we admire
about the IMF remain the full conditionality,
the rigorous independent analysis,
that it helps countries, not currencies.
And if those conditions are met,
then, certainly Britain,
would think very carefully about providing
further resources and of course
Of course, I'd probably have to go to my
parliament to recommend it,
but I would be willing to do so
in those circumstances.
I think if we accepted, if we said that
the IMF was never going to be there
to help countries who had created
a single currency,
then first we beg the question why those
countries would want to remain in the IMF
because it wouldnג€™t necessarily be
of any use to them.
And I think it would also be to undermine
the founding principle of the IMF,
which was, that in the end, we shouldnג€™t just
let people and countries
deal with their problems alone, that the world
should try and help those countries.
And that was one of the lessons of the last
great financial crisis in the 1930s.
The final point I'll make is I donג€™t think
that is the sort of lasting solution,
however, to the Eurozone.
Ultimately, if you're in a single currency
as the United Kingdom knows,
and the United States knows and others,
you have to transfer fiscal resources
around the country
to make good differences in competitiveness,
regional competitiveness.
And ultimately, for all the structural reforms
that are going to be undertaken,
we hope and believe in the Eurozone,
they're still going to be regional disparities
within the Eurozone
when it comes to competitiveness.
And I think the price of having a single currency,
the remorseless logic of having a single
currency,
is that you make good those differences, you
ameliorate those differences
by transfers of funds whether it's from New
York City to Alabama,
or from the City of London to the north of
England, those transfers take place,
and that is how you can make a single currency
work.
It's one of the reasons Britain didn't want to
join the Euro.
But having the Euro now having been created,
I think those fiscal transfers are going to be
a permanent feature of a Euro that works.
It's a pity that we donג€™t have a
representative of Germany on this panel
because I have a pretty good idea of what the
response would be to this suggestion.
And the outside perspective is really
very interesting.
It's what I'm looking at from a market
point of view.
When the people concentrate on talking about
the size and the strength,
and who is contributing material
for building the firewalls.
In fact, there's other way of looking at it.
No matter how hard, how strong the firewall
is,
the market will look at exactly the nature of
the economies
which this firewall is protecting.
And if firewall is protecting,
and the economy was suffering from a short-
term liquidity problem, that's one case.
If the firewall is protecting, what we
consider to be an insolvent economy,
that's another matter altogether.
No matter how hard, how strong
the firewall is, it won't survive.
The question is, how we're able to do this?
Because most of the economies are protected
at the end of the day.
Then people look at how does economy
survive in the longer term.
It's not a question of balancing the books
and how we will generate growth.
So, for that reason, you have to find ways
in which to energize the public sectors
in the European economies, from a market point
of view,
then making sure in a medium or long term p
these are viable concerns,
these are solvent economies.
So in that case, the question of firewalls
will be less significant in my view.
One of the really big questions is, of course,
making precisely that distinction
in the case of states.
It can be quite difficult to define
what the borderline,
between need-liquidity and insolvency.
And there has been an enormous debate,
obviously in Europe about this,
but it obviously is a linking part
of what sort of growth they get,
what sort of interest rates they get,
what sort of policies they pursue.
There are clearly plenty of countries
you can perfectly well argue,
they are liquid but not insolvent
at the moment.
But the point is absolutely fundamental,
and it clearly arises in the case of Greece,
which we are now dealing with.
Minister Furukawa.
I just want to mention about speaking of the
role of IMF.
I think that the most important thing,
Europe itself does its utmost effort,
otherwise the firm action of Europe,
I don't think that the developing countries,
like China or other countries,
are not so willing to pay more money
for the IMF even if IMF secured the return,
because under the condition that Europe
makes their most effort,
and they make firm actions and then IMF can
support the European countries.
And, in that condition, including Japan
and, I think, other countries,
other international community,we are willing
to support the Eurozone through IMF.
Minister Babacan.
Well, the whole financial system is based
on a certain fundamental concept,
and that is the trust to the states.
So the value of the sovereign signature,
and that is at the core of the financial system,
and, also, the corporate world functions
on top of that core.
Now, when Greece started to have problems,
a country which is only 2% of the GDP,
by the way, it was very important,
and we made this very vocal that, at any cost,
the default of Greece should have been
prevented.
Even PSI, private sector involvement,
we think it is wrong
because when you let a country
in the European Union,
a country in the Eurozone to default
partially, or totally, disorderly, whatever,
a default is a default, and it has raised risk
premium of the whole Eurozone.
It has raised the risk premium
of the European Union overall.
So every single country has already started
to pay for it.
And now, once that door is open for defaults,
then it is possible that other countries could
also go through that door.
Again, coming back to the concept
of confidence,
one that is hurt, it is going to take years,
if not decades, to fix this.
So no matter what, I think it is now time
to show serious demonstration of solidarity,
and within the Eurozone, if possible,
if not possible,
the only resources of the Eurozone
then include tier resources,
but make sure that countries donג€™t default.
These are the countries of the developed
world.
These are the countries of the modern world.
The technicians, the academicians,
the politicians,
I think what is needed to be done in every
country is very well known.
There is no doubt about what kind of policy
action to be implemented.
What is to be done is known.
What is important is to implement this.
So when we talk about firewalls and so forth.
Firewall, no matter what the number is,
it has a limit.
We can talk about, okay, 500, one trillion,
but it has a limit.
But when we lose the sense of solidarity
and when we open doors for defaults,
then just talking about shortened fixed amount
of numbers would probably not even be enough
to prevent the fires or even bigger fires.
So before the situation gets really out of
hand,
it is very important to give the guarantees
and assurances,
what kind of method is necessary to make sure
that a Eurozone country should not default.
And once that guarantee, once that confidence
is maintained,
and then built up with fiscal steps, measures,
with reforms and so forth.
But first, confidence and then steps to be
taken.
The order is I think very important.
There are so many questions,
but let's just focus on one question,
people won't be surprised if I raise this
because it's already come through with really
quite clear differences
of emphasis in the panel.
So get the issue out there which is the role
of austere fiscal austerity,
who should have it, how much, how you manage
it.
Obviously, some people are not, fairly
well-known I'm one them,
are concerned that we are in a situation
when a lot of the private sector
is deleveraging for reasons we know,
massively so.
Business for a whole range of reasons lacks
confidence, I accept that, is an issue.
If the whole range of big governments,
and remember,
the governments we're talking about account
for about half the world economy,
all going into austerity together,
this is the paradox of (inaudible),
you end up actually with the worst fiscal
outcome and no growth,
and that's what we are that somebody like me
is concerned about.
That doesn't give you the exit strategy.
Now, you're very clear that you need
fiscal control.
You are of course too.
Christine Lagarde has put a somewhat different
emphasis on this issue.
Let's get this out.
Chancellor Osborne, let's say, how do you see
the dangers of the collective rush,
particularly in the Eurozone now,
everybody consolidating at the same time?
Why do you think this is going to work?
Well, I think, the issue is debt.
We are recovering from balance sheet
recession.
And let me speak about the U.K.
I became the finance minister when the country
had an 11% budget deficit.
This was the highest budget deficit Britain
had ever run outside of the Second World War.
I think you've seen over, frankly,
over the last 18 months,
countries that have not been able
to put forward convincing programs
of deficit reduction have had to chase
the market.
I've seen their market rates go up.
I've seen the problem get worse on them,
and they've ended up having to do
more austerity than perhaps they would have
had to do
if they had set out a credible plan legislated
for it at the beginning.
And, I think, what we've done in Britain
has achieved two things.
One, it has kept those market rates low and so on.
But it also prevented a spillover
into our financial system.
Britain is the home of one of the world's
largest global financial centers,
the home of some of the world's largest banks.
If there had been a spillover from concern
about U.K. sovereign debt
into our financial system,
it wouldn't just have been Britain
that would have suffered.
The whole world would have suffered.
So I think it has provided an anchor.
I think it is necessary,
but I don't think it is sufficient.
I've never argued that the only thing
you should do is try and reduce your deficit,
reduce the fact that Britain was consuming
50% of its national income
in terms of public expenditure.
I've always believed you also have to
undertake structural reform,
making business tax system competitive,
and take reforms to education and the like.
I've never thought it was, as I say,
sufficient, it is necessary.
And as I say, I think we've had frankly
a rather painful experiment
with some of my neighbors of what happens
if you donג€™t secure market confidence
in your ability to pay your debt.
Christine Lagarde, how do you define this issue?
You talked specifically
but, somewhat elliptically, obviously,
about countries that have room for maneuver
and countries that don't.
How do you define room for maneuver
in the present context?
First of all, in terms of general principle,
I remember,
I think it was the beginning of 2009 at the
time
when the IMF actually recommended stimulus
packages.
Indeed. I can remember it.
Your predecessor did so on this panel I think
for the first time.
Absolutely. Absolutely.
And there was actually a hint 2% of GDP
would be probably appropriate
for each and every country in the world
to actually react to the unfolding
of the then financial crisis
arising out of the United States.
And that was a shift at the time.
My sense is that we need to be careful
with those sort of broad-casted, general,
one-size-fits-all messages
because each country is specific.
Each country is different.
The amount of public spending
will vary from one country to the other.
And, I think, that the message needs to be
tailored
and made really specific to the situation of
the country.
So first principle, no one-size-fits-all.
It has to be tailor-made, customized
to the specificities of the country.
We see countries, in general, falling into
three categories.
First category is that of countries
that are in such bad shape
or have so much room to tighten 
that they just have to go
for fiscal consolidation, go fast, go deep,
get it done, the old system, if you will,
front-loaded programs and bounce back
from a hard prescription.
Second category is those countries that should
let automatic stabilizers play out.
That's the case for the U.K., for instance.
The fiscal revenues, they're down
because the state collects less tax.
It spends a bit more because social safety
nets have to play out and that is fine,
and that's a perfect trap to be on.
And then you have some countries,
not many at the moment,
but, I'm not going to go through the list of
them, but around the world I would say
there is a handful of them
that have the fiscal space to actually slow
down the fiscal consolidation path
without violating their domestic rules
because some of them have those
in-house domestic rules
that have to do with fiscal consolidation
and balance budget and all the rest of it.
So that's, Martin, what I would define
as those three categories,
customized treatment of fiscal consolidation
that is needed.
Mark Carney.
Two very quick points, if I may.
One of the things that has to be done
when making those judgments about
consolidation is to reinforce and enable an
environment for business investment.
I'll use the U.K. as an example
with a focus on infrastructure
and public-private partnerships,
the corporate tax rate,
these are the types of the things that also
can help unlock that business investment,
provided you have a financial system.
So that is incredibly important.
But let me just draw your attention.
We don't have representative of the U.S.
on this panel.
We have two and a half percentage points, 
at least,
a fiscal drag built in into the United States
in 2013.
I think there are some illusion perhaps,
I don't want to put words in your mouth,
Christine, but I just did, to the United
States in a situation in an environment
where you have a central back
that is clearly at zero lower bound
for a long period of time of its purchasing
assets, that you are the reserve currency,
one has to question the wisdom of having that
level starting January 1, 2013
two and a half percentage points down on the
level of GDP,
because of the fiscal multipliers.
I'm going to turn it to the floor.
I mean we could go on for many more hours,
but I can give the opportunity to people to
ask questions.
Very difficult to see people.
The person in the third row I think.
You'd stand up, say who you are,
and it's a very, very brief question.
Larry Elliott of the Guardian.
There are 75 million young people under 25
without work in the world today.
How serious a problem is this,
and what should be done about it?
The thought it's much more than 75 million.
But we won't quibble over numbers.
I'll take two or three questions
and handle them.
The person in the front row,
if you're good enough to stand up.
Thank you. Luigi Buttiglione from
Brevan Howard Assets Management.
Maybe it's a question for Mrs. Lagarde.
I want to put together a comment by Governor
Carney and by yourself.
Governor Carney spoke I think, very correctly,
about the balance-of-payment crisis issue.
You spoke about competitiveness.
And I think if one puts the two things
together,
this means that there is a Euro crisis.
I mean, one has to face it.
I mean the problems which are stemming from
Europe's stem from different competitiveness,
so this is why we need the structural
reforms and so on.
This means also that, quite likely, when the
Euro experiment was started was not optimal.
If you want to think about confidence
in the market,
do we have to think that now the structural
reforms
can make this area an optimal currency area
within a sufficiently short period of time?
This is confidence.
As Governor Carney said correctly, I think
these firewalls,
without that, they donג€™t matter very much.
Thank you very much.
Okay, I'll take one more question.
Somewhere at the back.
I can't see very clearly.
Somewhere at the back. Somebody over there.
It's incredibly bright.
I'd like to hear Chief Executive Tsang's
and Governor Carney's view
on whether or not the ECB should participate
in the Greek restructuring.
Whether the ECB should...
Should participate on the Greek haircut.
Oh, the Greek haircut.
And who was the other person
you wanted apart from Governor Carney.
Donald Tsang.
Chief Executive Tsang.
Ah, Greek haircut.
Okay, good questions.
I think I have to ask Bob Zoellick first.
Seventy-five million young people unemployed.
Actually, it must be far more, a problem not
just in the developed,
but in the developing world.
We see it as a central issue in what's
happened in North Africa and the Middle East.
It's a central concern for you.
From your perspective, both in the World Bank,
and more widely, how important is this issue
and what, if anything, should be done
about it?
Well, it's important across a range of things.
Number one, what we've seen unfortunately
is if people often donג€™t get a good start
in terms of employment and skills
that can affect them their whole lives.
Number two, this is a tremendously then
underutilized resource to contribute
to countries and economies.
Three, there's a specific issue
that we're dealing with and others are
about the school, the work transition,
and some of the skills development
that are a part of this.
So all of this is part of the bigger issue
that I think some of us
have been trying to draw out which is that
it's not enough to muddle through.
It's not enough to just get liquidity
to the system, and frankly,
it's not enough just to do the fiscal fix.
There's other tone here that you've heard
a little bit
particularly from the emerging markets
and a little bit from Mark
and also from George about the structural
reforms, about trying to create the basis
for competitiveness going forward.
But the reality is if you're going to do
fiscal consolidation
and you're going to do structural reforms,
it's also helpful to have some
context of growth occurring,
and there are different ways
that that can occur.
That was your question on the fiscal part.
But, frankly, there's other aspects that
related in open markets and trade
and frankly removing some of the impediments
to growth that we see in the private sector
where again there's resources to be deployed.
And part of the points here which is a very
big point,
is that policy has to be much more in the
round.
We're so focused on fiscal and financial
problems, we're missing that.
Just one little point on this because we
almost said it your other point,
Europe is so focused on the Eurozone.
As you've seen, just in the past couple of
days,
we've tried to organize some support
for southeast in Europe and the Balkan.
Some of these are European Union countries.
We got some information from the BIS yesterday
that verified what I've been worried about,
which is you're going to see a credit
contraction as these banks pull back.
You've got big events in North Africa.
The events in the Eurozone, the European Union
are definitely going to have the effects
on their trade and their ability
to overcome some of the economic issues
related to the political problems.
We're seeing it in trade finance.
And so again, I do think there's a little bit
of myopia even on the fiscal side
because some of these goes back
to how you implement the banking regulations.
And, frankly, the European banking
authorities' approach
towards the higher capital standards, in my
view, did not take account of these risks.
I think it's now adjusting.
So we've got ripple and wave effects of this
and they affect young people, old people,
and a lot of regions that we should be
concerned about.
Let me just take two very quick points
for you, Mark Carney.
One of them was raised here, a member of the
Trade Union of Central Bankers.
Should Central Bankers take losses when they
acted as lender of last resort
in a full-hardy manner?
And the second question, since I raised it
earlier, and Bob has just raised it again,
is the regulatory system, which you are of
course a central part,
actually providing a completely confused
message,
closing stable doors after the horses have
fled,
sort of making the banks incredibly resilient
is exactly the point
or trying to move exactly the point when
actually you want regulatory forbearance?
On the first question on the Greek
restructuring,
a part of the spirit I took from Donald
Tsang's remarks is get it right.
When you do something, do it quickly,
do it right.
What's incredibly important with what comes
out of the current discussions
is that it's credible.
And so the size of the haircut,
the aggregate haircut to Greece,
has to lead to a credible debt
sustainability analysis full stop.
It can't be just meeting the number
because the number was there before.
And if that requires fuller participation
from the private sector,
and potentially the public sector, so be it.
Then the question is how should it be done
for the public sector.
It's not going to surprise you as a card-
carrying member
of the Guild of Central Bankers
that fiscal decisions are the responsibilities
of governments,
monetary discretions of the Central Bank.
Central Bank is ultimately backed
by governments.
It's better to sort these things out ex ante,
but they may need to be sorted out
in real time.
There is a backstop in Europe,
it should be used.
On financial reform, three levels of clarity
we need to provide.
We provided it on capital.
To be absolutely clear, the capital rules
are out there.
The definitions are there.
Banks know what they are including the
SIFI surcharges.
Those countries who had additional supplements
have done so.
Anybody else should speak now or hold back.
Capital is clear, it's a question of
taking time to get there.
The second clarity which we should establish
this year, is clarity on resolution
and in too big to fail.
I'm not sure we're going to get there
for every institution,
but we should get as far as we can
and make it clear what's left to be done.
But in the final clarity we really need
to get back to, is to be absolutely clear
that actually there is a tremendous value
to open markets,
cross-border markets, not just within Europe.
We talked about it,
the global cross border-markets.
There's lots of worthy boring but important
plumbing
that we're doing in derivative markets, repo
markets, other things.
But we need to think about the implications
of regulation
with respect to market making proprietary
trading, shadow banking,
the net impact on cross border flows
of capital which is going to be important
to get the global economy from a 3% per annum
to a 4% and 5%.
And Bob's points in trade finance
are fully appropriate.
Final question, are we trying to turn
the Eurozone into an optimal currency area
exposed in about a year or two?
And if so, is this in any way a viable
project.
I think that was the question.
If it wasn't, it can be re-asked.
May I ask Christine Lagarde, what have you
on that question is?
Perhaps there's wrinkle on this, perhaps the
way I put it.
You mentioned competitiveness.
Competitiveness is a relative,
not an absolute concept.
So, we are saying that some people should
become competitive relative to other people.
We know who we mean.
Are the other people prepared to accept
becoming less competitive?
That's essentially the same question.
Well, don't you think, Martin,
that everybody has to be more competitive?
I know it's a relative issue and we measure
against somebody else,
and that somebody else will never say -
Everybody can become more efficient.
Every country can become more efficient,
but everybody can't become more competitive.
It's very important to distinguish the two.
Everybody has to compete to be more efficient.
Can we settle on that?
Yes.
Great. 
Okay.
Well, that's what is needed,
and it's not something that the IMF
can actually monitor control or encourage
by way of its programs, because our programs
are short-term, generally,
and they deal with balance of payment issues.
So I can see your point about our current
programs,
particularly in that part of the world,
with a bit of ambiguity as to the purpose that
the countries have.
Given the length of time, that is going to
take some of them
to consistently compete for more efficiencies
given where they start from.
But we cannot give up on that either.
And I think that it's perfectly legitimate
that the IMF continues to be involved,
as a gesture, as a statement
from the multilateral international community,
and with the tools that it has to be actually
on the ground,
to make sure that there is delivery,
that there is implementation,
of some of the conditionalities that are
embedded in our programs.
I think that will help in any event.
But presumably we'd agree.
Chancellor Osborne.
We all accept truly that the structural
reforms are necessary and essential,
but the underlying efficiency stroke
competitiveness problems
which have emerged in the Eurozone, these
arenג€™t going to be fixed in a few months.
We're talking about a multiyear problem.
This of course is true for all countries,
isn't that the case?
Well, the structural reforms will take many,
many years,
but I'd come back to the point I made earlier.
I donג€™t think they're ever going to be
sufficient.
To make the single currency work in the long-
term, there are going to be permanent
fiscal transfers, in my view.
That can be done in an opaque way
through a Central Bank.
It can be done in a semi-opaque way through Eurobonds,
or it can be done through direct budget
transfers.
But that is what's required to make a single
currency work.
I'm not claiming that's a particularly easy
thing to deliver politically
within the Eurozone,
but I think it is an essential component
to bringing long-term stabilities of the Euro.
Minister Furukawa, you wanted to comment
on this issue.
Yes.
Speaking of the competitiveness,
I think it's very important that each country
is trying to strengthen its competitiveness.
But in the global world, the fair competition
is very important.
Sometimes countries trying to make use of
devaluating of their own currency,
and by devaluating the currency, they're
trying to improve their competitiveness.
But it's not a fair competition.
So under the fair currency level,
the fair competition really works.
So, I think that they should not use the
currency policy
as a way to increase their own
competitiveness.
I can't imagine this is directed at a country
that has just announced a zero rate to 2014
I think which will mean effectively
seven years of free money.
I think I can possibly take one incredibly
short question for one person.
If anybody has a question or we exhausted
the audience?
Okay, a very short question from one person.
So, the world has about seven billion people
according to the latest figures.
The advanced regions, Europe, America, Japan
collectively are one billion.
So I just wanted what the IMF, World Bank,
and the leadership of the advanced countries
are proposing in 2012 for the poor regions
of the world,
and there are four billion poor people in the
world, so what are the policies for them?
I'm going to give Bob one minute to answer
that question. I'm sorry for that.
That's okay.
Which is, obviously, in some sense, the most
important question asked.
Well, it's actually also the opportunity
because some two-thirds of global growth has
come from the developing world
over the past five years.
So there's opportunities in areas such as
infrastructure which can create jobs today,
productivity tomorrow, also services and goods
from the developed world.
So we're trying to emphasize that.
Second, because of the risks,
we're trying to do whatever we can to draw
lessons from other developing countries
about effective social safety nets.
There's been tremendous success of this
Mexican and Brazilian model.
We've now extended to some 40 other countries.
But for some countries, that don't have the
capacity, you need other alternatives.
And that's going to be important for food
Security,
a whole coast of things that could happen.
And third, is to continue the structural
reforms that I was referring to,
which I hope make the private sector
possibilities in emerging markets.
So, if you're actually thinking about
allocation of capital
to produce growth in the global system,
this should be the bright spot.
I'm going to have to conclude.
I'll just make four remarks about what has
been said.
Three remarks and one's the concluding point.
First, I think it's been a very rich
discussion,
I'd love to have gone on longer.
I think one of the biggest things that comes
out of this, the world economy is slowing.
The Eurozone is clearly still a concern.
We haven't talked fully about some very
important parts of the world,
but I think that concern remains.
It's very, very important to remember
that the great thing that has made a
difference to people's perception, above all,
is a change in monetary policy or perception
of monetary policy in Europe.
The U.S. is doing this again.
I mean, essentially, ever since the beginning
of the crisis,
we've used Central Banks in a completely
unprecedented way,
completely unprecedented way.
I think this was absolutely necessary.
But it is incredibly important to understand
that as long as that remains the case,
we're still in a crisis.
As long as we have these monetary policies,
the Central Banks are telling you that this
is a contained depression.
That's what these rates mean.
What else could they mean?
The second point which comes up very clearly,
is a very strong sense that the Eurozone
should be helped from outside,
but only if it helps itself, and this panel
which is a world of outsiders,
seemed pretty clearly agreed that it hasn't
helped itself enough,
in a whole range of respects, both in the
short-term and the long-term.
And the fact that the outside world thinks
that way, is itself very, very important.
The third point is that there is a lot of
discussion about competitiveness,
fair competition, austerity issues.
Underneath all that, in the world we are
talking about,
any economist starts thinking about beggar my
neighbor concerns,
and that links with the trade policy issues.
If everybody is fighting for market share
by depressing wages
and reducing domestic demand, we have an
adding-up problem.
That's my perception at the world level, and
it's something we really have to think about.
And the final point I would make,
which comes out again and again,
is that we are living in a different world
in terms of relative weights of countries,
relative importance of countries,
and I think the west still just hasn't begun
to wake up to the significance of this fact.
And so I will make one last
very provocative remark,
which is that I will know that we have our
different we in the west that recognize this
when the immensely distinguished heads,
and brilliant heads of the international
organizations on this panel,
will be replaced by people who are,
respectively not European and not American.
-It might be some time.
-Or in the other order.
I don't expect it to happen, but it has to
happen.
I think we should congratulate the panel.
We've had a very rich discussion,
and I hope it has raised your concerns
and you don't go away from Davos as complacent
as some people seem to me to have become.
We haven't begun to get through this
incredible mess
that we in the west have created.
Thank you very much.
