St Petersburg, 06/09/2013 (Agence Europe) - The 20 largest economies on the planet have adopted - and pledged to implement - the St Petersburg Action Plan for growth and employment.
“Today, the global economic situation is becoming more stable. Economic recovery is there, but problems remain”, said Vladimir Putin on Friday 6 September, after the G20 Summit in St Petersburg (our translation). According to the Russian president, the action plan identifies “new sources of investment”, particularly in the energy sector, and lays down medium-term objectives in several fields: budgetary consolidation, structural reforms, the creation of infrastructure, particularly energy infrastructure, the fight against unemployment, particularly youth unemployment. “The next stage is to put the plan into practice”, said the Russian finance minister, Anton Siluanov.
The presidents of the European Commission, Mr Barroso, and of the European Council, Herman Van Rompuy, welcomed the fact that Europe, still in a convalescent stage, is no longer being criticised. The other members of the G20 have recognised the efforts Europe has made since the Los Cabos Summit of 2012 and “they have encouraged us to pursue the implementation of our exhaustive response to the crisis”, they said in a joint press release. Italian Prime Minister Enrico Letta was pleased that the G20 Summit “is no longer talking about austerity or countries in crisis, but about growth”. However, he warned of the dangers of economic recovery without job creation. In its action plan, Italy has made many commitments, such as support for SMEs, the creation of the Destination Italy programme, the creation of the youth employment guarantee and administrative simplification.
In their declaration, the G20 countries identify the main risks to the global economy, such as financial volatility and the high level of public debt. In second position comes “the fragmentation of the financial markets in Europe”. They note the desire of the eurozone to shore up the foundations of economic and monetary union, for instance by means of additional efforts to reinforce the solidity of banks' balance sheets and to move forward decisively towards “banking union”.
Economic recovery is in its infancy in Europe but well on the way in the United States and the focus is now on the emerging countries, where growth is slowing. Facing the problem of capital flight, which has reduced the value of several currencies, these countries are worried about an overly abrupt end to the accommodative policy of the American FED.
Recognising the contribution to growth of the accommodative monetary policies, the G20 also stresses the negative contagion effects of these policies when they are carried out for an extended period. As called for by BRICS (Brazil, Russia, India and South Africa), future monetary policy changes must be “calibrated carefully and communicated clearly”.
Financial regulation. The global leaders adopted the interim report of the Financial Stability Board (FSB), the international organisation tasked with coordinating and monitoring the implementation of the reform of the international financial architecture.
“Our work has made substantial progress, but it is not yet finished”, said the FSB. Welcoming progress on bank recapitalisation and re-balancing the remuneration systems in favour of long-term investments, the Board also notes “major differences” in supervision practices and in the treatment of bank risks. On this, it calls for improved comparability in the way banks weigh the risks taken and for the definition of a “simple leveraging ratio”, with results in this area announced for “early 2014”. The FSB notes considerable progress in the supervision and treatment of “too big to fail” banks, which will be bound by increased requirements in terms of loss absorption and subject to resolution plans in the event of default. Nonetheless, the organisation calls for the national authorities to have increased powers in order effectively to apply, by 2015, the key principles of banking resolution. The “28 banks and nine insurance companies” of systemic importance will be obliged to comply with increased capital requirements and their shareholders will have to act in order to guarantee their solidity in the event of any turbulence, the Russian minister said.
“Shadow banking”. Germany presented an initiative, which has the support of the G20, to create a better framework for the shadow banking system, in which entities act as financial intermediaries without being subject to the same obligations as banks. In this area, the G20 has adopted a “roadmap” with specific measures and a timetable, to prevent the systemic risks posed by these financial entities, whilst recognising the role they could play as an alternative source of funding. Letta, who is very pleased with this “very important step” taken in this area, also spoke of the “timidity” of certain G20 countries about building in greater transparency and controls for a sector which represents nearly a third of the global financial system.
Taxation. The G20 now believes that automatic exchange of information should become the international rule in the taxation field. The new standard, which seeks to better tackle tax evasion and fraud and facilitate the task of countries in collecting tax revenues, will be presented at the first G20 Finance summit, which will meet under Australian presidency in February 2014. In a document annexed to the final summit declaration, the world's main economies say that they expected to initiate this practice among themselves, “by the end of 2015”. Barroso and Van Rompuy indicated that “we are very satisfied that the new standard will be implemented in 2015 by G20 members, as the EU had requested”.
The next challenge will consist of promoting the automatic exchange rate throughout the world. In this connection, the International Convention on Mutual Administrative Assistance in the tax domain, which 56 different jurisdictions have signed, including all members of the G20, will play a pivotal role.
Another key area is prevention of the erosion of tax bases and the transfer of taxable profits through tax optimisation practices, on the basis of the OECD 15-point action plan. Efforts here suppose also the recasting of international tax rules. Angel Gurria, the secretary general of the OECD emphasised that these rules “have not followed developments in the economic environment, including the growing importance of the digital economy”. This reform, which should be completed in two years, will have four major objectives: rectifying the legislative shortcomings in certain jurisdictions, guaranteeing that profits are taxed where the economic activity is undertaken, increasing transparency through a single style of declaration of profits obtained and taxes paid. By providing technical assistance, it will also seek to help as many developed countries as possible improve the way taxes are gathered and that regulatory arbitration is made more difficult.
IMF. On the other hand, no progress has been made on reforming the governance of international economic organisations such as the IMF. Andrei Bokarev, the head of the Russian Finance Ministry's international service acknowledged that “this is an area in which we have not been able to achieve the results we expected under the Russian presidency”. The new reform aimed at increasing the decision-making power of developing countries within these organisations, so as better to reflect their growing economic weight was supposed to have been completed by the beginning of 2014 but there have been delays. The 2010 Seoul reform has not been fully implemented, particularly because the US has not ratified it. Putin, however, suggested that, “we believe that the process for redistributing IMF shares should be finished as soon as possible”. (MB/transl.fl)