This is the text of an open letter from Prime Minister Julia Gillard and Treasurer Wayne Swan to G20 leaders.
The G20 met at the Los Cabos resort in Mexico. Various reports suggest the letter was not well received by other leaders.
The G20 is the “Group of Twenty Finance Minister and Central Bank Governors” from 19 countries plus the European Union. The countries are: United States, Canada, Australia, Saudi Arabia, India, Russia, South Africa, Turkey, Argentina, Brazil, Mexico, France, Germany, Italy, United Kingdom, China, Indonesia, Japan and South Korea.
The G20 Los Cabos Summit comes at a challenging time. Risks in Europe have intensified significantly in recent weeks.
Increasing concerns over Greece and the stability of the Spanish banking sector are adversely affecting global financial markets and moving us quickly into crisis management mode.
Weaker than expected economic indicators in a number of major advanced and emerging economies are confirming that the world economy is on a slowing trajectory. On current projections, growth in many G20 countries is unlikely to be sufficient to make a significant improvement in employment conditions.
The world is looking towards the G20 for decisive action to address the immediate vulnerabilities facing the global economy. It is also our responsibility to take the lead in putting the global economy on the path to stronger and sustainable growth and creating more jobs.
The euro area public debt and financial crisis is clearly the major immediate risk to the global recovery. The euro area governments and the European Central Bank have undertaken a number of significant steps since the Cannes Summit. However, it is also clear the euro area needs to take further actions to resolve the current crisis.
Europe must move immediately in taking steps to restoring the health of its financial sector. A positive step would be the commitment to move towards a more integrated banking system, involving euro-wide regulatory and supervisory oversight and deposit insurance. Similarly, ensuring fiscal sustainability will ultimately require further measures to share fiscal risk, which must also be accompanied by stronger euro wide fiscal governance. Progress towards deeper financial and fiscal union is needed to underpin confidence in the sustainability of the euro area’s monetary union, ensure the stability of its financial system, and prevent contagion through global financial channels.
While solutions to the euro area crisis must come from Europe, all G20 countries can make a contribution to enhancing growth prospects. The magnitude of public debt in a number of advanced economies remains a key pressure point for the global economy. There is growing awareness that growth must be pursued alongside fiscal consolidation. There is no need to choose between the two. Without sustainable public finances, growth cannot be sound nor sustainable. Businesses will not have the confidence to invest and consumers will not be willing to consume unless they have some certainty over the future. At the same time, credible fiscal consolidation plans must be part of an overall growth strategy.
The challenge for many countries is to implement plans that focus on ensuring fiscal sustainability over the medium term, while using all available scope to support growth and jobs in the short-term. Bringing forward investments in key infrastructure projects is an example of policies that can create jobs and boost demand in the short-run and add to productive capacity in the longer term. While the overall short term pace of fiscal consolidation will need to vary according to country circumstances, spending and taxation decisions can still be calibrated towards supporting growth.
A pro-growth strategy also requires further G20 commitments to structural reforms. These reforms include opening up competition in services and key product markets, encouraging flexible labour markets, and tax reforms and entitlement reforms that enhance productivity and improve incentives to work. Ultimately, structural reforms will have the most significant positive impact on lifting global growth and creating more employment opportunities.
Structural reforms that lift growth also create the positive feedback loop needed to improve the confidence in the sustainability of public finances. Implementing the necessary reforms will often meet with resistance. In many cases, the required adjustment process will not involve quick fixes and will need sustained political focus and effort. This has been Australia’s experience over many years of reform to improve the openness, flexibility and productivity of its economy.
Australia has always been a strong supporter of the G20 and its role as the premier global economic forum. Its ability to bring together the advanced and emerging economies of the world to address the 2008 global financial crisis averted a deeper global recession. It has also enabled the G20 to drive important reforms to the global financial system and international financial institutions. The recent agreement to increase the IMF’s global firewall by a further $430 billion has been another significant achievement.
The G20 must take the opportunity at the Los Cabos Summit to show political leadership to address the current crisis and build on our previous efforts to lay the foundations for stronger, sustainable and balanced growth that leads to more jobs and improves living standards for our people.
Prime Minister Julia Gillard
Deputy Prime Minister and Treasurer Wayne Swan