International Chamber of Commerce, Zürich, June 26, 2013) The G20 and Switzerland: what to expect? Alexander Karrer Deputy State Secretary for International Financial Matters Federal Department of Finance Introduction [diapo 1: The G20 and Switzerland: what to expect?] Since the creation of the G20, Switzerland actively sought to contribute to its work and to be included in its process. One strategy that Switzerland has suggested in the past is representation on a variable geometry basis. This means the inclusion of nonmembers with specific interests in and the ability to contribute to particular discussions. Within this framework, countries would be invited to participate in G20 working groups, as well as at the ministerial level. Such a framework for inclusion would serve both to improve the relevance and quality G20 s output, and to broaden the acceptance of the results it generates. It would ensure that all major players are included in the G20 decision making process. This year, Switzerland welcomes the possibility to materialize this strategy for the first time. Indeed, Switzerland has been invited by the Russian presidency to take part in the G20 Finance Track, which includes the four meetings of finance ministers and central bank governors as well as numerous technical working meetings. This gives to Switzerland an opportunity to share its views on international policy issues, to contribute to the various work streams, and to defend its own interests within the main international decisionmaking body.
[diapo 2: Overview] 1 The G-20 A) G20: overview [diapo 3: world map] Let me first give an brief overview of the G20 s importance. The G20 members account for 85 percent of the world economy; 80 percent of global trade; and two-thirds of the world's population. [diapo 4: The G20: overview] The G20 is an informal group of 19 countries and the EU, with representatives of the IMF, the World Bank, the FSB and the OECD. It was formally created at the September 25, 1999, meeting of the G7 Finance Ministers as a forum of advanced and emerging countries (finance ministers and central banks governors). Before 2008, the G20 had little relevance and its output was limited. The first-ever G20 summit of heads of state took place in the fall of 2008 to coordinate the global response to the financial crisis. The rise of the G20 reflects a new geopolitics. The global economy is now too large, diverse and complex to be led by any one country or by a small group of like-minded countries, such as the G7. This makes the G20 more representative of the changes taking place in the global economy compared to forums such as the G7. Since the global financial crisis in 2008, the emerging markets and developing economies have been the main drivers of global growth. The health of the global economy will increasingly be linked to development of emerging markets and low-income countries. The purposes of the G20: At its creation, the G20 was foreseen as a new informal mechanism ( ) to broaden the dialogue on key
economic and financial policy issues among systemically significant economies and to promote cooperation to achieve stable and sustainable world growth that benefits all (G20 Communiqué, 1999). As the former Canadian Prime Minister, Paul Martin, said: There is virtually no major aspect of the global economy or international financial system that will be outside of the group's purview (1999). [diapo 5: The previous international financial architecture (before 2009)] [diapo 6: The new international financial architecture (since 2009)] The G20 took a central role in the international financial architecture since the financial crisis. It uses its power to set the agenda of international financial institutions in 2008. [diapo 7: G20 work organization] The G20 s agenda is based on and culminates in the yearly Summit of Head of States. The actual work is conducted at various for a and levels all the year round. It includes four meetings of finance ministers and central banks governors, the deputy s and sherpa s meetings, and numerous working groups, technical seminars and conferences. Each year, the presidency is in charge of defining the priorities and of setting the agenda. The imports a sense of dynamism and momentum one of the strengths of the G20. The G20 also organizes outreach events with the private sector (B20) and the nongovernmental organizations. [diapo 8: each year, a new dynamic] [diapo 9: Key outcomes of the G20] The G20 also plays a central role in strengthening the coordination of national economic and financial policies in a currently challenging environment. Such coordination is critical to secure the
outlook for financial stability and global growth, to address the fiscal and external imbalances that exist in many countries and regions, and to enable continued progress on financial sector reform. The G20 provided an important impetus to the decision making in the formal institutions. In many instances, the G20 has effectively mandated the IMF and other international organizations (Multilateral Development Banks, WTO, OECD, ILO, IEA) to implement these decisions. Transition: While the G20 s legitimacy and effectiveness is questionable, the G20 effectively remains the main decision-making body at the international level. In the mid-term, the G20 will continue to play a central role in maintaining and promoting international financial stability. For this reason, it is key that Switzerland remains close to the G20 and actively contributes to its agenda. 2 Switzerland and the G-20 [diapo 10: overview] [diapo 11: Switzerland in the international financial system] Let me first remind you of the important role that Switzerland plays in the international financial system. Switzerland is an active member of the IMF, as a committed shareholder, as well as of the FSB. We contribute considerably to the IMF, both financially and on substance. Further, we actively contribute to the work of the World Bank, the WTO, and the OECD. Switzerland is a founding member of the latter two.
Although Switzerland s geopolitical role may not be sufficient to be included in the G20, the Swiss know-how on economic and financial policy making is valuable for the G20. Due to its experience and the features of its economy, most notably its financial sector, Switzerland can make an important contribution to overcoming global financial challenges: In terms of gross domestic product, Switzerland s economy ranks among the 20 largest economies in the world; The Swiss financial sector is very integrated internationally; Switzerland ranks fourth according to the holding of net external assets; The Swiss franc is the world s fifth most important currency, as measured by the average daily trading volume; the Swiss stock exchange ranks among most important exchanges in the world. Several large corporations of systemic importance for the global financial markets are based in Switzerland. [diapo 12: Activities of Switzerland in the G20 «Finance Track» in 2013] This year for the first time, Switzerland is able to take part in the four G20 meetings of finance ministers and central bank governors. Switzerland is able to make an active contribution, at all levels, including to various working groups and preparatory meetings. This also includes the drafting of the communiqués. The latter are critical to G20 process, since they set the direction for further work. [diapo 13: An example of the Swiss contribution: the Framework for Strong, Sustainable and Balanced Growth]
One example of a the Swiss activities in the G20 this year: The G20 has set up a peer-review process under the Framework for Strong, Sustainable and Balanced Growth. This is at core of its efforts to coordinate macroeconomic policies. [diapo 14: The Framework working group : contributions of Switzerland] On fiscal policy, we have given to the G20 our fiscal objectives and share with the group our experience of the debt-brake rule, as well as debt management, which was well welcomed by the group. On external sector, we had to explain our situation and the structural factors which explain why Switzerland run current account surpluses. On monetary policy, we had to explain the exchange-rate floor introduced by the SNB in September 2011. Further, we contribute to the Russian initiative (study group) on financing for investment. [diapo 15: Regulation: an international process] [diapo 16: Reform of macroprudential framework] We also shared our know-how on financial regulation (ex: too-big-toofail regulation) through the FSB (which Switzerland is a full member). Switzerland has strong interest to support the G20 s focus on economic stabilization and fiscal sustainability, given the critical state of fiscal positions in many countries. Switzerland supports G20 action on two fronts: fiscal consolidation and growth. On the one hand, structural deficits must be reduced with an appropriate mix of measures. On the other hand, structural reforms to improve productivity and competitiveness are indispensable.
Like the G20, we consider that decisive progress on financial system reforms is a necessary complement. Highly leveraged financial institutions pose a threat not only to financial stability but also to public finances. To promote financial stability, more progress is necessary in the following four areas: Basel III, accounting standards, resolution regimes and shadow banking. Lastly, Switzerland supports the progress in establishing international mechanism for the orderly restructuring of public debt. We thus believe that the issue of sovereign debt restructuring needs more attention and should be dealt with in the context of reforms of the international financial architecture. We therefore strongly support the proposed examination by the IMF of the existing rules and policy framework on sovereign debt restructuring. Transition: Overall, there are interests of both the G20 and Switzerland to improve their relationship. Taking part in the discussions is all the more crucial for Switzerland that the G20 has potential to increase its influence and that the risks of G20 pressures against Switzerland may grow. 3 Outlook [diapo 17: Overview] [diapo 18: Limits of the G20] Due its growing importance, the G20 faces a series of challenges: Legitimacy: while the G20 accounts for a significant share of the global economy, it remains only partially representative of the global community. Although EU members, as well as the EU institutions, are represented, this does not apply to non-eu European countries. Central Asia is another example of a region that is not in any way
included in the G20 process. Partial inclusion implies limited ownership of the results of the G20 process. This is particularly problematic when these results have a direct impact on non-g20 members. Contrary to the international institutions, the G20 has no clear structures of representation and decision-making, clear rules of accession, and clear obligations of membership (which, as an informal forum, it shouldn t, but it should respect mandated international institutions). Consensus / heterogeneous group. The breadth of the G20 s membership is perhaps its biggest challenge. When the G7 was formed it represented the dominant powers of the day, but its members also shared the additional characteristics of being democratic, largely Atlantic oriented and militarily allied to the United States. By contrast, the G20 is not only a significantly larger forum, it is a mix of differing political systems, economic structures and conditions, and cultural backgrounds. In addition, every G20 leader does not have the same depth of relationships with other leaders compared with G7 leaders. The diversity of interests among G20 members is frequently cited as a reason why the forum at times has difficulty in advancing its agenda. While the number and interests of those sitting at the negotiating table have increased, the opportunities for consensus and concerted action have shrunk. Expanded agenda. Since its creation, the G20 s agenda has expanded significantly and now includes many items that appear unrelated to each other or the forum s key objectives and are not prioritized.
Coordination with other international bodies. Given the growing agenda of the G-20, the working relationships between the G-20 and the International Organizations has increased in quantity and intensify in scope. [diapo 19: Risks and benefits for Switzerland] There are risks to Switzerland: On tax issues, the G20 recently took note of the progress report of the Global Forum on Transparency and Exchange of Information for Tax Purposes. Switzerland made it clear that it is committed to the globally applicable standards. We explained to the G20 that the Federal Council has already initiated solutions for the issues criticised by the Global Forum. We also emphasised that internationally accepted standards must be complied with and implemented by all countries. We specifically referred to the beneficial owners of Anglo- Saxon trusts, whose identification urgently has to be improved in many countries. Another risk for Switzerland is the the reform of the international financial architecture that the G20 ministers and central bank governors discussed. The G20 called for all countries to ratify the governance reforms of the International Monetary Fund (IMF) agreed in 2010. It also undertook to conclude the current examination of the IMF quotas and their calculation by 2014. For Switzerland, it is crucial that discussions in this regard take place in the IMF decisionmaking bodies intended for this purpose. Thirdly, a risk to be considered could come from the G20 pressures that may influence the Swiss macro-policy, in particular under the G20 multilateral surveillance process. Switzerland broadly
agrees that global imbalances remain acute and that coordinated action is needed to reduce future threats. And efforts to reduce imbalances must of course be driven by the big economic players. This being said, Switzerland must convince its G20 partners that there are structural factors which explain why some economies run current account surpluses. Further, on monetary policy, given the context of the currency manipulation / currency war, it is important to explain and defend the Swiss National Bank s policy and mandate of price stability, which has to take into account business cycle developments. [diapo 20: Conclusions] In conclusion: By taking part in the G20 discussions, Switzerland can provide significant contributions and be informed of the G20 work; Thus, the benefits of taking part in the G20 process overall outweigh the risks of G20 pressures against Switzerland; Given its large integration to the international financial system, it is key for Switzerland to continue to sit at the G20 table.
The G20 and Switzerland: what to expect? Alexander Karrer Deputy State Secretary State Secretariat for International Finance SIF International Chamber of Commerce Zürich, June 26, 2013
Overview A.The G-20 - purposes of the G20 - functioning of the G20 B. Switzerland and the G20 C. Conclusion / Outlook 2
G20 members account for: -85 percent of the world economy; -80 percent of global trade; - two-thirds of the world's population. 3
The G20 an informal group of 19 countries and the EU, with representatives of the IMF and the World Bank formally created at the September 25, 1999, meeting of the G7 Finance Ministers, "as a new mechanism for informal dialogue ( ) to broaden the dialogue on key economic and financial policy issues among systemically significant economies and to promote cooperation to achieve stable and sustainable world growth that benefits all the first ever G20 summit took place in 2008 to coordinate the global response to the aftermath of the financial crisis 4
The previous international financial architecture (before 2009) International Financial Institutions IMF World Bank OECD DFF DFE DFE BIS BNS International bodies G7 G10 DFF / BNS G20 Financial Stability Forum DFF BNS Standard- Setter CBCB OICV AICA GAFI CSPR CSFM FINMA & BNS FINMA FINMA DFF BNS BNS Joint Forum 5
The new international financial architecture (since 2009) International body G20 International Financials Institutions IMF World Bank OECD Financial Stability Board BIS Standard- Setter BCBS OICV AICA Forum mondial GAFI Egmont Joint Forum 6
G20: work organization Sherpas G20 Leaders Finance Ministers & CBG Outreach dialogue: B20 Think-20 Y-20 NGOs Non Membrers BCBS Working Groups High-level Seminars Deputies Working Groups 7
Each year: a new dynamic 8
Key outcomes of the G20 2008 crisis management Financial sector repair after 2008 Regulatory reforms Macro-coordination Tax issues Financial inclusion & literacy, development 9
Overview A. The G-20 B. Switzerland and the G20 - Switzerland in the international financial system; - Activities in the «G20 Finance Track» in 2013 C. Conclusion / Outlook 10
Switzerland in the international financial system GDP: Switzerland s economy ranks among the 20 largest economies in the world; Swiss financial sector (among the top 10 globally) and the Swiss stock exchange (among the top 15 globally); Swiss franc: the world s 5th most important currency (as measured by the average daily trading volume); Switzerland reliably provides significant financial contributions to international institutions. 11
Activities of Switzerland in the G20 «Finance Track» in 2013 G20 Finance Ministers and Central Bank Governors G20 Deputies meeting International financial architecture Financing for investment Framework for strong, sustainable and balanced growth Energy sustainability Anti-corruption Public debt management Commodity markets transparency Financial literacy & inclusion Credit rating agencies Trade issues 12
An example of the Swiss contribution: the Framework for Strong, Sustainable and Balanced Growth Mutual Assessment Process (MAP) Accountability Assessment Framework technical-analytical political Framework Working Group 13
The «Framework working group»: contributions of Switzerland Restoring public finances: budget consolidation (austerity vs. growth) Experience of Switzerland (the debt-brake rule) Limiting global imbalances: Current account (monetary and exchange rate policy) Explaining the Swiss situation and policy Strenghthening growth potential: structural reforms (e.g. labour market, social programs) Contribution of Switzerland (e.g. financing for investment ) Enhancing financial stability: Financial sector regulation Sharing the Swiss know-how (e.g. too-big-to fail, etc.) 14
Regulation: an international process Identification of problems/ priorities Standards Monitoring / Evaluation Implementation 15
Reform of regulatory framework 1. Banking sector stability 2. OTC ( ) 3. Shadow Banking? 4. Consumer protection ( ) 16
Overview A. The G-20 B. Switzerland and the G20 C. Conclusion / Outlook - Limits of the G20 - Risks and benefits for Switzerland 17
Limits of the G20 Lack of legitimacy; Lack of formal structure / mandate; Consensus / heterogeneous group; Expanded agenda; Coordination with other international bodies. 18
Risks and benefits for Switzerland IMF Quotas and governance reform Tax issues (automatic exchange, BEPS) Current account (measures against global imbalances) 19
Conclusion Switzerland provides significant contributions to the G20; The benefits of taking part in the G20 outweigh the risks; Benefits of sitting at the G20 table. 20