 Y tro ble Does today's submit on a global agenda Thank you for for watching this live online Thank you for joining us in the panel It's about dignity We've segwayed across a range of global issues We think this is probably, of course, the most important one of the lot What are we going to be doing in terms of the economy in future Are we ready for the next crisis What are the high points of the global economy mae'r wyf yn ysgolwyddiad neu'r sgolwyddiadau yma yna, a'r ddaeth y bydddwn yn y ffordd. Rydyn ni'n dweud o'r pethau, pethau'r ffordd a'r ffordd yn ysgolwyddiad a'r ffordd. Rydyn ni'n dweud o'n amlwg waith ystod, Llewca i Caerngodd, Llewca i Gwriwc. Rydyn ni'n dweud o'r cyfgroedd yma sy'n dweud o yr ysgolwyddiad? Wyddech chi'n gweithio? Rydyn ni'n gweithio, Yn oedd y gallu cyffredin ni'n oed yn ymwneud o'r cyfwyr yn y Cymru, ond yma yw'r cyfrifedau o'r crisis ar y cyfrifredin yn 2010, ac ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud yn y cyfrifredin. Yn y cerddau o'r lleswns ymddechrau, ymwneud ymwneud ymwneud, ymwneud ymwneud, First that Greece became vulnerable because it had followed a growth model that was based on financing consumption expenditures and construction and financing it through transfers and foreign borrowing. The first lesson is that any country should really watch out not to build unsustainable debt and fiscal positions. The second lesson is that severe austerity, as that was practiced after May 2010 when Greece signed with its partners the first MOU, the first memorandum of understanding, can be counterproductive and it can be counterproductive as it happened to be increased both on economic grounds and political grounds and social grounds. So we have to be extremely careful as to how do we design programs, consolidation programs which are needed but they need to be fair, they need to provide adequate social protection networks and they need first and foremost to make sure that growth can continue and we're not plunged into a deep recession that we cannot get out. So policy makers have a lot to learn from the Greek experience as well and I would be happy to discuss more as we go along. Of course we're looking at it, we're in a world where productivity is slowing down and we're also looking at a world where competitiveness is slowing down. The global national, the global competitiveness report which the World Economic Forum publishes every year and most recently published about a month ago pointed to the possible scenario where we're not ready for the next financial crisis. We don't have the resilience that we need but we will need to withstand another financial shock, do you agree? Well, I would agree, I think we need to do much more at the global level not to have repeating financial crisis. Don't forget that we've had a series of financial crisis especially since capital markets have been liberalized and capital is free to move from country to country. So the financial crisis would be inevitable if we don't make sure that there are not huge macroeconomic imbalances, namely that some countries run very high surpluses, other large deficits. Secondly, there are rebalancing mechanisms across country. Third, that we coordinate better macroeconomic policies and economic policies. And fourth, that we also regulate effectively the financial markets. And I would say also correct some of the big tax loopholes that exist, primarily tax havens and so on, that provide an opportunity for some people to seek shelter from tax and create also kind of big fiscal imbalances in specific economies. So you really need global governance reforms, certainly on the tax front and also on the financial regulation. Beatrice Vader-Demaro, your professor, University of Mainz in Germany, former advisor to the German government and Chancellor Merkel. One of us, what kind of state are we in? Rate cut in China in the past couple of days, we're talking about the ECB considering further QE in Europe. Are you afraid? No, I'm not afraid. I don't think it's a reason to be scared. If anything, the ECB has once more actually demonstrated that it is prepared to go an additional step if this is needed. And one of the lessons of this crisis worldwide, but certainly also for Europe, has been the emergence of the strong central bank. I think that we had underestimated how important these institutions would be in saving the day several times. Especially in the European case, we now can clearly also put a date on the moment when the huge danger of escalating instability basically turned around. And this is in the June of 2012, and it was an intervention, Mario Draghi, initially only an oral intervention, which then, however, was also backed up by effective policy. And if you look at the history also of this year, in spite of an enormous renewed crisis with Greece, in spite of, you know, a history where you're seeing almost every weekend the leaders meeting and not agreeing. In spite of this, you look at the financial markets in Europe and it's remarkable how resilient they were. And now in this summer, again, we have new shocks this time coming from outside. And again, in overall, it is more a story of resilience rather than shocks, especially if you compare this to the type of shocks that we faced two or three, four years ago by now. So, no, I don't think it's a reason to be scared, but it's a reason to be concerned. That's a different connotation. It's a reason to be concerned that, you know, central banks again going back to central banks are having to again do more. And that the Fed is now to the global level again in the situation where it is doubting more and more, whether it can actually start, even only start normalising its monetary policy. And the repercussions this is having on the other hand on emerging markets and basically the whole dollar area, which is more or less the whole, the rest of the world are enormous. I mean, it's remarkable that during the summer a number of central bank governors from emerging markets came out with a call for please resolve this uncertainty. Please do something because resolve this uncertainty, this is having large repercussions on emerging markets. I think one of the implications of what Beatrice is saying is that leadership matters and that you really need to, markets need to be led in a way and the example of the Mario Draghi's leadership at the European Central Bank shows that. It's played a very important role. On emerging markets, Ella, you do a lot of your research on emerging markets and you're quite bullish you have been in the past recently about China. What do you think about the, not just China, but the state of the global economy outside the advanced economies? The issue for me is that while the discussion today, and we sit on this panel as well, is so much focused on the crisis, so much focused on the day-to-day fluctuations, what the Fed is going to do, what the global liquidity is going to dry up over the next month or next week. However, the absolutely fundamental issue is growth rather than the crisis. If you have growth, many other things are much easier. It's easier to reduce debt, it's easier to alleviate poverty, it's easier to have the markets which may not necessarily have to be led. So the question is how to achieve growth. The absolutely key question and the absolutely key issue for the world economy over the short, medium and the long term is the growth in China. To me, the focus on the alleged problems in China with the stock market, with the potential crash, the China bears, they're essentially non-existent. Let me explain why I think so. The large part of my recent research is on understanding the long term determinants of growth in China. What are the key drivers of growth and whether they're going to continue? What we find is that essentially all of growth in China from 1978 can be explained by essentially two factors. First is the growth in productivity and moreover the growth in productivity of the private sector. Second are the market reforms. What they mean by market reforms is initially the price reform, improving the functioning of the markets and the prices, the key role of which is to guide the markets, to lead the markets. And the second is the monopolisation of the economy. What we find is that if the long term trends of growth continue, the same trends which were from 1978, China is going to grow at 7% to 8% over the next 10 years and then gradually converge to the more normal growth. Well, one can say it's fine and dandy, but what about the worst case scenario? We tried to calculate the worst case scenario and our worst case scenario is what if China reverts to the same economic policies as those were pre-1978? What if we continue the trends of the Mao's era from 1953 to 1978? What we find is that even in this worst case scenario, China can grow at 5% to 6% for the next decade. So even this worst case scenario is actually not that bad. So to me it's difficult not to be optimistic about China. It's difficult not to be bullish about China and hence not to be bullish about the emerging markets. But I want to have one qualification here. The emerging markets is to a large part a misnomer. We talked about BRICS, the fashionable acronym, putting together the countries which are very, very different. So rather than talking about the emerging markets, I think it's much more important to talk about individual countries, to talk about India, talk about China, on which I'm relatively bullish. I mean at least for India. And a different question is to think about the countries such as Brazil, such as Russia, South Africa and other emerging markets. It's not about growth, not resilience. It's interesting. Before we come back to that, anyone have any questions? Frank Cain from the national newspaper Abu Dhabi. I just want to know how we would know if there is going to be another crisis. I was reading, Nouriel Rubini recently said that we need some kind of early warning system. I thought Nouriel Rubini was the early warning system the last time round. But what is the thing, the financial or economic thing, event that would tell you we are heading towards another serious 2009 type crisis? One of the things that I would watch out for is a building current account deficit which is not mirrored into investment activity in productive sectors of the economy. So looking at the gaps and the imbalances and the kind of gaps you have is I think is a good indicator of whether you might have speculative attacks on specific markets or not. I would absolutely agree with that indicator. I mean the countries that get into trouble first and have gotten into trouble first in the past have been the ones that have current account deficits rather than surpluses. Another indicator that is very robust in predicting crisis is the build up of the growth of private sector credit which when it is much, much faster than economic growth. So that is actually one of the most robust indicators of a bubble and if you in particular are seeing this in a real estate sector then it is a reason to be concerned. Those are some of the indicators that have been tested in early warning systems and are regularly monitored. The good news is that this learning has actually been, has already now had, there have been learnings for this in terms of policies because all across the, actually across the world, macro potential tools are being implemented so that are exactly designed to avoid these kind of excesses. So there are institutions be it at the central bank or special macro potential supervisors that are monitoring these kind of imbalances and very often also have instruments to curb credit growth hopefully early enough before they actually become too large. I actually disagree with the distinguished panelists and I'll tell you why. I actually think that economists cannot predict crisis and it's very difficult at least to predict crisis. Let me decide two academic papers on this. One was a very large study done by the International Monetary Fund which assessed the early warning systems and the kind of indicators they used including actually many of the indicators that my distinguished panelists talk about. They do not work. They looked at the private sector models. Private sector models do not work better than essentially just throwing darts at the board. I don't agree and then we have to disagree. If you're saying it's a 50-50 then we have to disagree. Another study by Andy Rose at Berkeley also argued that if you look at all of the possible indicators that one could have had to build an early warning system to try to predict the 2007-2008 financial crisis, they also don't work. But maybe we can agree on something. If your definition of working is it's always perfect and you always have a 100% probability, so you have perfect indicators, then we agree that we do not have those. But it is we have better. We are doing better with these indicators than 50-50. Can I put it a little bit differently? It's like an earthquake. You might have energy building up and you can see the energy building up under the ground and you can have indicators when the earthquake will come, you don't know it. I think it's a good analogy. Usually it doesn't take 1,000 years which can be the case. Mindful of time, we must move on, but it was incredibly rude of me. I didn't introduce Alley, Alley Sfavinsky, Arthur M. Oken, Professor of Economics at Yale University and a member of the GAC on Russia, a good friend of the forum. We do have a very hard finish, but I'm going to try to sneak in a very, very quick question. I'd like you all to give us. This is just a recipe for growth. Let's focus on growth, not resilience for this one. Alley, in the emerging markets, what one policy action would you like to see in the next 12 months to keep growth going in the areas where you think it's growing and rescue suppressed rates elsewhere? I would look at actually the reduction of that around the world and one has to understand that there is a connection between the emerging markets and the developed economies and there is no such thing as decoupling. So what would happen in the developed markets would actually reverberate and affect very strongly the emerging markets. So that's what I would look out. Beatrice, in Europe, growth, please. I think the whole initiatives around increasing investment are very important, but the problem is not only some financing has been promised, now we also need the projects to go with the financing and they have to be sensible projects too. But I think that is an important issue and this is something that has to be addressed. So it's not access to finance, it's actually good projects to invest in. Access to finance is no longer such a problem and this is partly due to the actions of the ECB, this is no longer the prime problem. And Llewka, let's zero in on Greece. Well, for Greece the challenge is clear. We need to promote investment which has dropped by about 12 percentage points, especially in the tradeable sectors and exportables. We structure the productive base so that there can be jobs and value added within the country. Thank you very much. I'd shame I'd love to continue this conversation, but we do have a hard finish. The plenary is about to start. Thank you very much for joining us here and online and thank you for joining us here on the panel. It's been a pleasure. Thank you Oliver. Thank you.