European Commissioner for Economic and Monetary Policy
Press speaking points of Commissioner Rehn at the G20 Finance Ministers meeting in Busan, and comments on Hungary
G20 Finance Ministers meeting
Busan, 5 June 2010
"We had very substantive and serious discussions about the challenges the world economy is facing. We all share the view that our first and foremost task is to reinforce confidence and contain the financial turbulence, so that it will not derail the nascent economic recovery.
Our G20 partners fully support the very substantial operations we in the European Union are putting in place to safeguard financial stability in Europe. We are doing so for the sake of sustainable growth and job creation, both in Europe but also in the whole world economy.
The EU has taken decisive action. On 9 May, the EU Finance Ministers decided to set up a European Financial Stabilisation Mechanism, a backstop of up to €500 billion.
In parallel, the EU agreed on a Consolidation Pact. This Pact means that the EU Member States are strongly committed to accelerate fiscal consolidation, where warranted. Fiscal consolidation should be accompanied with a comprehensive strategy of structural reform in order to raise potential growth and employment rate.
In discussions with our G20 partners, I felt that they share European concerns about the need of globally coordinated exit strategies. The EU considers that fiscal consolidation must be ambitious in terms of size and pace: it should start in 2011 at the latest in most countries, and even earlier in those countries whose fiscal space is zero or limited. It is clear that late exit of exceptional fiscal stimulus would entail big risks for sustainability of public finances.
However, fiscal consolidation should be differentiated according to national situation: speeded-up consolidation in countries with fiscal constraints, while countries with fiscal space should not advance their plan so as to sustain domestic demand and therefore growth.
It is important in this context that the G20 Summit in Toronto will spell out guiding principles for a sequenced and differentiated fiscal exit, in the same vein as the EU is doing. All major economies need to do their part to achieve the agreed objectives of strong, balanced and sustainable growth. Coordination at global level is critical for optimizing growth prospects.
Finally, the EU fully shares the importance of driving forward the global agenda for financial reform and repair. The G20 should re-affirm its commitment to reform financial markets in a consistent and coordinated manner: this means improving both the quantity and quality of bank capital and to discourage excessive leverage; improving supervisory and crisis management processes; convergent international accounting standards; increasing transparency of derivative markets.
The EU is committed to make the financial sector contribute to the resolution of financial crisis, through a levy on financial institutions."
Answering a question about the fiscal situation in Hungary and recent comments by Budapest, Commissioner Rehn said:
"Talk of a risk of debt default in Hungary's case is exaggerated. Hungary has made serious progress in consolidating its public finances. The budget deficit was reduced by over 5% of GDP between 2006 and 2009, and fiscal consolidation continued during the very difficult period of the global credit crisis. Now the economy is on the way to recovery and has shown first signs of strength in the first quarter. Hungary has already executed extensive structural measures such as pension reform. The reserve levels are high and have been upgraded several times in the context of the Balance of Payments assistance. The current account is in surplus after a two-digit deficit in 2008.
We do not consider comments such as the recent comparisons between Hungary and Greece helpful. As we have seen, misleading comments of the kind that have been made in the past two days can provoke adverse market reactions even against a background of sound fundamentals.
I have full confidence that Hungary will continue along the path of sustainable growth on which she has already embarked."