Thank you very much. The issues you have raised we will absolutely come back to if it’s all possible. Pretty all of them I think. Let me turn you now to Deputy Prime Minister Mr. Babacan. Perhaps I very much want you to talk about your own country in the region, lots going on. What are the economic significance of that. It’s obviously a very big issue. Also, obviously you have a, I don’t know if we can describe this as a privileged position but ring side seat on the Euro Zone, a disaster…sorry, I didn’t mean that, of events and I know you have views on it. And also, particularly relevant because Turkey, of course , had a financial crisis quite recently in the last decade and it has gone through that and has coped with this crisis from this point of view remarkably well so I know that you have lessons to teach us as well. So what is your perspective on where we are?
Well, if I may talk about the current global economic situation and most specifically what is going on in Europe and the Euro Zone and if we really want to see sustainable growth, job creation, employment and so forth, there is one very important concept which I think we have to emphasize over and over again and that is confidence.
When we don’t see a medium of confidence, when consumers don’t have trust for the future, they don’t spend. When corporations don’t have confidence, they don’t invest and when banks have doubts about our future, they don’t lend. And when these don’t happen, the economy stops, the financing channel stops and we don’t see growth.
How to attain confidence, how to regain confidence should be at the core of the policies in many, many countries. For those countries where public debt is a source of concern, we don’t think that fiscal stimulus will work. If a country already has high debt and if this debt creates a lot of doubts in the markets, simply trying to spend more has some kind of growth through just government spending and in Euro Zone there has been some unfortunate trials in 2008, 2009, trying to give fiscal stimulus and had a very unfortunate results at the end of the day.
For those countries where public debt is reasonable, and for those who have some physical space, maybe there might be some efforts but what is most important here is about fiscal policies. There’s an asymmetry. It is always easy to losen fiscal policies. So then in 2008 and 2009, many European governments said okay, this is going to solve the problems but then it is time to tighten the policies. It is very, very difficult. It has many costs, it costs the fortunes of the leaders, it costs the fortune of the political parties in many countries and thinking about the fact of that sensitivity, the fiscal policies, it is important to be on the prudent side when it comes to budget and public debt and so forth.
Once keeping the fiscal policy at a prudent phase, then for countries it is very important to have a very clear strategy and communicate the strategy very well so that the strategy is owned by the masses because if there is no local ownership of the policies, then probably those policies will not work. Do people understand? Do citizens of that country understand? Do they really understand the necessity of the steps, maybe difficult steps that is needed for the future.
And then having a medium term vision is also very important. Now I have attended many, many discussions in Davos and we have been talking too much about 2012 but if we are going to talk about growth and employment, it is not just the single one year we have in front of us. We have 2013, 2014 and for some policy actually, it might be hurting growth in the short term today but it may generate more and sustainable growth later on so we should probably look at growth and job creation with a medium term approach and the governments announcing these medium term programs is going to be very, very crucial to bring some predictability about what is going to happen.
If the companies or the financial sector doesn’t have any idea about what’s going to happen in this year in the United States, if we all have big doubts about what’s going to turn out in the Euro Zone this year and if all the mass media is broadcasting this, how to expect people to spend more, how to expect companies to continue investment or hiring people and how to invest…the banks, although they have much liquidity in their hands to do their function of lending.
Davos 2012 – Global Economic Outlook Pt 6
economics expert witness
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