The Call for Action is a good summing up of the consensus. In principle everybody agrees on the action points and on the suggested goals. But many of the goals will require a long time to be achieved and will involve a painful adjustment for some of the parties involved in the process. There is a timing element and an adjustment one to keep in mind.
This is the case with goals such as solving the sovereign debt crisis, implementing structural reforms in certain countries, find new sources for growth, secure a sustainable, balanced and inclusive growth.
In the interim (while targeting the goal), it may be that not all parties involved are keen to reach the goal.
It is important to be aware of this and to be prepared that while targeting the goal there will almost certainly be social tensions.
One of the key premises is certainly to restore confidence in financial institutions so that they can go back to play their role of key engine for growth. In order to do that several actions need to be taken, including regulations reforms and banks’ recapitalization.
But it would be naive to think that the deleveraging of banks will not have a negative impact on trade volumes, project finance, SMEs access to capital.
Also, to seriously restore confidence in the financial system it is important to re-establish a “normal” and healthy relationship of mutual respect between finance and politics. It is key that politicians stop to demagogicly demonizing financial institutions, blaming all the problems on finance just to attract a few votes. Economic growth needs a healthy financial system.
Over-regulation of financial markets and institutions will push capital out of the regulated financial world into “alternative” and unregulated investments. Money seeks return and if regulated markets are not offering it, capital moves to unregulated markets boosting a shadow financial system. In the long term that can be even more dangerous than poorly regulated financial markets.
This is already happening in the US simply based on expectations of excessive regulations.
A key action point is in my opinion to restore the trust and revitalize the relationship between business and government, between the private and the public sectors.
Reciprocal trust between business and Government is at an “all time low” in the US and in Europe and, to some extent and for different reasons, is fairly problematic also in emerging markets, where there is a lot of tension between business and Government, private and public sector.
This needs to be solved because a healthy partnership between business and Government is key for growth.
The risk of inward-looking protectionist policies as a reaction to the fear of certain countries of losing jobs is very high. That would hurt international trade and enhance commercial and political tension among countries.
However, the same fear is driving measures not only against the movement of goods (trade) but also against the movement of people (immigration). Immigration is not longer seen as a resource but as a threat, integration is harder, social mobility is lower.
The fear of losing jobs and wealth is translating in fear of the other.