Weidmann: Don’t give up on the G20’s achievements
Speaking in Frankfurt at a conference forming part of Germany’s presidency of the G20, Bundesbank President Jens Weidmann underscored the importance of the G20 for international free trade and for progress in regulating the financial markets.
"In times of uncertainty, international cooperation is particularly important, and we are certainly living in a period of heightened uncertainty at the moment," he said.
"In times like these, the G20 is a precious treasure."
Rejection of protectionism
Weidmann remarked that after the great recession in 2008-09, the G20 member states by and large resisted temptations to implement "beggar-thy-neighbour" policies to stimulate their national economies at the expense of other countries.
"This success was due, not least, to the explicit rejection of protectionism by the G20 and the renewed commitment to an open, global economy," he reasoned.
"Open markets and a competitive economic system are the pillars on which the prosperity of our economies rests," emphasised Weidmann, while noting that globalisation fears were on the rise, not just in the United States, but in Europe, too. Public concerns like these need to be taken seriously, he added.
Although open markets boost prosperity overall, they don’t necessarily boost it for all people all of the time, explained Weidmann. Barriers and exclusion, however, would certainly be the wrong response to these concerns. Instead, he said, it was essential to ensure that enterprises and their employees were properly equipped to harness the opportunities presented by globalisation and technological progress and that they were able to manage structural change.
Progress in financial market regulation
Another key achievement by the G20 underlined by the Bundesbank President was that, through common efforts, important lessons had been drawn from the financial crisis.
"All the milestones of regulatory reform were endorsed by the G20," Weidmann said. He added that, for instance, the tightening of bank regulation under Basel III would hardly have been imaginable without the political support of the G20.
"It’s now all the more important that these achievements are not given up," Weidmann emphasised.
Weidmann said that the implementation of new standards had significantly improved the capital adequacy of the banking system and made the global financial system more stable, noting that greater stability was beneficial for banks as well since, for instance, it was reflected in lower funding costs. In contrast to the original plans, however, no final agreement on Basel III was reached last year. This resulted in regulatory uncertainty, which was weighing on banks.
"A swift resumption of negotiations would be in our common interest," according to Weidmann.
In addition, Weidmann called on the G20 to
"stick to its commitment to regulatory reforms and its clear rejection of regulatory arbitrage. Carrying out deregulation in the hope of stimulating the economy could backfire," he warned, adding that
"insufficiently regulated financial markets can do significant harm to economic prosperity if a crisis occurs, as the latest financial crisis has painfully demonstrated."
Under the German G20 presidency, the G20 finance ministers and central bank governors will meet in Baden-Baden, Germany on 17 and 18 March. Enhancing the resilience of economies, promoting investment – particularly in Africa – and shaping digitalisation will feature high on their agenda.