Press Briefing by Secretary of the Treasury Geithner

Press Filing Center
Intercontinental Yorkville
Toronto, Canada
 
2:03 P.M. EDT
 
     SECRETARY GEITHNER:  How are you all?  Nice to see you.  It was sunny in Washington, I want to say, when I left.  (Laughter.) 
     The G20 leaders meet over the next two days to advance the goals of growth and reform.  We come to Canada with a solid track record:  The world economy is now coming out of the fires of the crisis.  Because we acted together, the world economy is now growing again, trade is expanding, and we are repairing the financial damage.
 
     And just in the past few weeks, we’ve made very important additional steps forward.  The United States is on the verge of enacting the strongest set of reforms — financial reforms — since those that followed the Great Depression.  These financial reforms, which embrace the broad principles set out by the G20, will reduce the risk of future financial crises and help make sure our financial system can better serve the interests of Main Street America.  And these reforms will help make sure that the United States of America is a source of strength and stability, rather than instability, for the world economy in the future.
 
     The leaders of Europe have acted to establish a powerful financial stability program to stand behind their members that are undertaking reforms to address their financial challenges.  And Europe is now moving to bring greater transparency and a stronger financial foundation to its banking system.
 
     China is acting to allow its exchange rate to appreciate in response to market forces.  This is a very important step towards helping China better meet its own challenges and helping provide a more level playing field for all its trading partners.
 
     This is progress, but the scars of the crisis are still with us.  So this summit must be fundamentally about growth, and our challenge as the G20 is to act together to strengthen the prospects for growth.  This will require different strategies in different countries.  We are coming out of this crisis at different speeds.  But these meetings give us the chance to address how the other major economies of the world are meeting this challenge of growth. 
 
     What we share in the G20 is a recognition that if the world economy is to expand at its potential, if growth is going to be sustainable in the future, then we need to act together to strengthen the recovery and finish the job of repairing the damage of this crisis.  And we agree on the need to restore balance to a world economy that had gotten dangerously out of balance.
 
     This recovery is now being led by very strong growth in the emerging markets and a solid expansion in the United States.  Growth started somewhat later in Europe and Japan and it’s projected to be somewhat slower over time, and it’s still dependent on exports to the rest of the world. 
 
     Now, the American economy is very resilient.  Our strength is that we adjust quickly.  And you can see that in the strength of productivity growth, the rapid pace of business investment and the remarkable pace of innovation in a range of high-tech industries in the United States.  And we are saving more as a nation, recognizing that future growth in the United States cannot be built on the strategy of borrowing to finance consumer spending. 
 
     Our growth strategy in the United States has three essential elements.  First, we put in place a very powerful emergency program to support demand, support growth, and fix what was broken in our financial system. 
 
     Second, alongside those actions, the President is enacting reforms to support future growth and innovation — from education and health care and financial reform to investments in research and development and infrastructure, and incentives for more efficient and cleaner energy technologies. 
 
     And finally, the President has outlined actions to reduce our future deficits — as recovery strengthens, to reduce those deficits to a sustainable position so that they do not harm future economic growth.
 
     These actions to reduce our deficits will reduce our deficits by more than half as a share of the economy over the next four years, which is among the steepest declines projected across the G7.  Now, these reforms are essential to improving the fundamental strengths of our economy.
 
     This strategy we adopted in the United States reflects the basic lessons of the financial crisis, and those lessons are:  In a crisis, you have to act with a commitment that matches the scale of the problem.  The quicker you act, the more effective the response.  Growth is not possible without a strong financial system.  Markets penalize uncertainty.  The role of the government is to create the conditions for the private sector to invest and grow.  You have to focus on the requirements of future growth, including fiscal sustainability, even as you confront the immediate challenge of lifting an economy out of crisis.  And these lessons must continue to guide our strategy as we confront the challenges still ahead.
 
     Now, in addition to these growth and financial reform priorities, the leaders will review progress on a range of other important shared goals, from promoting food security to phasing out fossil fuel subsidies, from expanding trade to addressing climate change and combating corruption.
 
     The world has now seen President Obama move quickly and forcefully to the challenges we face in the United States, and they’ve seen the United States work very hard to build a very strong, cooperative international response to the challenges facing the world.
 
     The G20 has made these last 18 months the most effective period of international economic cooperation we have seen in generations.  And here in Canada, we want to come together to build on that record. 
 
Thank you.  I’d be happy to take your questions.
 
     Q    Secretary Geithner, you recognize in your statement –
 
     SECRETARY GEITHNER:  Jen is going to identify you or call on you –
 
     Q    Oh, sorry, I didn’t see you.
 
     SECRETARY GEITHNER:  Would you like to go first?
 
     Q    That will be great.  Thank you very much.  Heather Scott with Market News International.  You recognize in your statement the differing speeds of recovery and policy actions by the G20 nations, but how concerned are you by the austerity measures in Europe — the U.K., Germany, France — being too soon and potentially endangering a recovery?
 
     SECRETARY GEITHNER:  Well, why don’t I put it in a positive way.  I think you saw in the statements made by a number of European leaders today and I think you’ve seen this in the commitment they’re going to make here in Toronto a basic recognition of the importance of growth.  We all recognize that as part of an effective strategy to make sure that we’re bringing this world out of crisis, we have to make sure that people understand that we’re going to take the steps necessary to bring down our deficits over time.  But we also need to make sure we’re growing. 
 
We have to find the right balance, and that balance is going to differ across countries.  But I think you’re going to see a strong commitment again by these major economies to do what is necessary to make sure that we are supporting recovery and getting that balance right.
 
     Q    I wanted to ask if you thought that any of the disagreements about the deficits which have occurred in the  run-up to the meeting might interfere with efforts to get work done on other areas or some of the other –
 
     SECRETARY GEITHNER:  I don’t think so.  Again, I think as you saw — not to invoke her again, but as you saw Chancellor Merkel emphasize today, there’s a very strong consensus on this basic framework for growth.  And you’ll see the leaders talk about it tomorrow.  But I don’t think that it will get in the way of the other issues we’re trying to focus on. 
 
     Even in financial reform, I think there’s a really strong consensus now on the key elements of what’s necessary for the world. And of course we come to that debate on the verge of passing a very strong — the strongest set of reforms not just we’ve seen in the United States considered in generations, but I think they’re the strongest reforms that any country here has yet contemplated putting in place. 
 
     And of course we want to complement those actions in the United States with a strong set of global standards to restrict leverage, stronger capital requirements, bringing oversight to derivatives markets, making sure we can handle future failures better.  We want to have a level playing field.  In these markets today, risk can move very quickly to evade the strongest standards, and we think the system will be stronger as a whole if these measures in the U.S. we’re about to enact are complemented by strong actions by other countries.
 
     And of course as you see in there, what they say, they have a very strong interest, too, because this crisis was devastating not just in the United States.  It crossed — the excesses in risk-taking you saw across the global economy were very, very damaging outside the United States as well.  So there’s a very strong interest among all these leaders to make sure we move now.
 
     Q    Thank you, Mr. Secretary.  Could you give us sort of a detailed list and sort of express what kind of level of confidence you are that these other members of the G20 are going to pass financial reforms that mirror the United States and get it done by November?  And second, the President said right before he left that he had 90 percent of what he wanted.  What’s the 10 percent — what’s the 10 percent you didn’t get in these financial reforms that you’d like to maybe take another shot?
 
     SECRETARY GEITHNER:  Let me do the latter first.  As you know, we wanted to have a consumer protection regime that would apply to anybody that was in the business of extending credit, regardless of whether you were a bank or a thrift, or a mortgage broker, or a pay-day lender, or an auto dealer.  And as you know, there was a very broad-based, ultimately successful effort by automobile dealers across the country to keep them out of not necessarily all of those protections, but some of those protections.  That’s one example of something.
 
     But the consumer protection provisions here are very, very strong.  And they will do a very good job of preventing the kind of excess that was at the heart of this crisis, which the big mistake we made in this crisis was Washington allowed a whole range of people in the business of lending to evade basic protections for consumers and engage in a level of predation and abuse that was deeply damaging to the lives of millions of Americans.  And this bill will prevent that from ever happening in the future, despite these minor — I would say minor examples where we didn’t get everything we hoped.
 
     The first question, though, was what examples can you point to that justify confidence that the world is going to actually move on a global framework of financial reforms. 
 
     Q    Western countries –
 
     SECRETARY GEITHNER:  Yes, I think what you have to look at is the agreements they had on capital.  Capital is the amount of resources you have to hold against the risk of future loss.  Financial crises are always caused by an excess of leverage, excess of risk-taking relative to the amount of cushions, safeguards you hold against those losses.  And the centerpiece of the global reform, and the test of this consensus will be whether we are able to get the world to embrace a sufficiently ambitious, sufficiently strong, uniform set of standards that will apply to all the major global financial institutions in all the major global financial centers.
 
     And we come to that with a very strong position because we acted very early in the United States to recapitalize our firms
– not just to replace the money that taxpayers have put in in the heat of the crisis, but to leave the system with a much higher level of capital than we had coming into the crisis.  And that gives us a very strong position to try to pull the world to those higher standards.  And we’re going to work very hard to make sure we achieve that.
 
     That will be a very critical test.  Derivatives is another example, but on derivatives, if you look very closely what the Europeans have committed to — we’ve been doing this in parallel throughout the last 18 months — we are very, very close on the core elements of it.
 
     Now, in this bill that just — in the conference report that just passed on Friday, there are some additional provisions that we put into our bill that I do think go beyond that consensus.  But again, we want to make sure that we have as uniform a set of conditions as possible.  Those are two good examples.  There are other examples, too.  But those are the things I would look to.
 
     Q    Which countries, though?  I mean that are moving past  — I mean, are you confident Great Britain is moving fast enough? France?
 
     SECRETARY GEITHNER:  On reform?  Well, the way this process works is there’s a set of negotiations that happen where all those countries come together and try to agree on the detailed framework that matters.  And that process is making a lot of progress.  We’re narrowing those differences, but we’re still some ways apart — again, because we come with these different starting points.  In a way, we’re here and much of the rest of the world is here.  (Indicating.)
 
     And just one more point on this.  The challenge in this, of course, is to make sure we agree on a set of very tough constraints that allow them to be phased in over time, because we don’t want to take any risk that this necessary project of trying to make sure we’re constraining risk-taking in the future so we can prevent future crises, does not magnify challenges for the recovery.  And the best way to strike that balance is to make sure you set ambitious standards, but give people a transition period so they can adapt over time to those standards.  And I think we have a very good chance at getting strong agreement on that.
 
     Again, if you just listen to what leaders across the world say, you see a very strong common recognition they want to be able to say to their people, we are not going to let this happen again.
 
     Q    Yes, thank you, Mr. Secretary.  The Canadian finance minister has said that he hopes to target GDP ratios on a downward trend by 2016.  Do you agree with that target?  And also I think the IMF is expecting a halving of stimulus measures in the G20.  Do you think that is too much?  Or should there be a slower stimulus withdrawal by 2011?
 
     SECRETARY GEITHNER:  I would look to the language the President used in the letter he sent to his counterparts.  You can see in that letter, again, the basic strategy we think makes sense, which is to make sure we’re focused on growth now — and everyone is still at the moment, appropriately — if you look, this is true in Germany, as well as the United States.  It’s true in China.  It’s true in Brazil.  If you look across these countries now, even though we’re all in somewhat different positions, everybody is still working to make sure they’re repairing the damage of this crisis.
 
     But as you saw in the President’s letter, we recognize — and I think all these countries recognize — that if growth is going to be strong enough in the future, people have to believe that we have the political will and the ability to cut those deficits sharply over time as growth recovers.
 
     And in the President’s letter, you saw the basic framework we laid out in the United States — he laid out at the very beginning of his administration, which is to make sure that we are in the United States reducing our deficits to a point where our overall debt burden is stable at an acceptable level.  That’s the test for growth.  And for us in the United States, that means getting our deficits down by more than half as a share of GDP over the next four years or so.
 
     And the President has laid out a set of detailed measures that achieve that objective.  As I said in my remarks, if you just look at the IMF tables, despite what some of the perceptions created in the run-up to this meeting, the U.S. program is a substantially more ambitious program than many other countries have laid out.  Now, that’s probably because we’re coming out of the crisis more quickly and because our underlying growth rates are quite strong relative to the rest of the G7.  But I would just point you to the balance we laid out in the letter.
 
     Q    And on the short-term stimulus withdrawal by 2011?
 
     SECRETARY GEITHNER:  Well, again, the best thing I can do is tell you what we think makes sense to the United States.  And it’s not going to be - it’s going to be different across countries.  But, in fact, on this question, as in so many, we’re broadly in the same place.  We laid out a two-year program of very powerful measures to support growth, fix the financial system.
 
     We’ve already, as you know, terminated and unwound most of the emergency financial measures, and we are about to pass the peak of short-term stimulus in the United States.  So looking forward over time, we are already starting to wind down and phase out those exceptional measures, and that’s appropriate because we’re a year into recovery now.  We do think it’s very important to continue to put in place a targeted set of additional supports to help promote small business lending, give aid to states in the United States to make sure they can keep teachers in the classroom, to provide incentives for business investment to try and make sure we’re helping the long-term unemployed.
 
     Those things are good policy now.  They make sense for the country.  But our broad strategy is, as the economy strengthens, we shift towards bringing down those deficits.  And that is absolutely within our capacity to do.  And the President is committed to doing that.
 
     Q    Mr. Secretary, could you clear up on this global banking reform — you guys are talking here in Toronto, and then they’re also talking this weekend and other weekends in Basel, Switzerland.  Who is doing what where?  And if we’re three our four months away from agreement on a proposal, where are the draft proposals?  Where’s the transparency that the G20 promised on this process?
 
     SECRETARY GEITHNER:  You’re eager to see them.
 
     Q    What’s that?
 
     SECRETARY GEITHNER:  You sound eager to see them.
 
     Q    I’d love to see them, yes, been asking for them and –
 
     SECRETARY GEITHNER:  We’ve been having a — we’ve been running a very intensive process over the last few weeks in particular to bring the people that ultimately have to be part of this decision together.  And that’s happening among central bankers; it’s happening among finance ministers; it’s happening among the supervisors and all the technical experts that have to make sure the details get right.
 
     But remember, this basic judgment of how much capital you force the system to run with, how much you constrain leverage, is fundamentally an economic judgment for governments because it’s a choice about how stable you want to make the system in the future, and it’s important to get that right so we don’t leave taxpayers with the possibility that they have to suffer the consequences of crises in the future.
 
     So we all have a stake in this judgment.  Those discussions, as they should be, are happening among all the people who have a stake in the decision.  And I think we are making a lot of progress and I think it’s perfectly achievable to have an agreement finalized in November.  When will the details of that be put out?  I’m not sure when they’ll be put out — probably in November.  But again, the virtue of this process is when we put them out, they’ll be out in the public domain for people to assess and see.  And they’ll have to be accompanied by very detailed regulations in each country. 
 
     In the United States, as you know, we go through an elaborate process of disclosure, transparency to give people a chance to look at, assess, comment on the merits of those proposals.  So it will be a fully transparent process, as it should be — because, again, the best way for this to work in the future is we want there to be simple, objectively measurable, consistent constraints on these things so you reduce the risk that people can evade them, erode them over time.
 
     Q    Mr. Secretary, you’ve mentioned that the scars of the crisis are still with us and that there’s a need for world leaders to work together to make sure that the global economy gets stronger.  What would you say the odds are that there’s a risk of a double-dip to the global recovery because of what’s gone on in Europe, because of financial markets that have been very chaotic in response?  If you can talk about –
 
     SECRETARY GEITHNER:  I think it’s within the capacity of the people who are going to be in those rooms together in these next two days to avoid that outcome.  You know, when you look at how governments have acted in the past, in past crises, history is riddled with mistakes.  And the two most important types of mistakes you see are of governments waiting too long to escalate, hoping it won’t be a severe as people fear, waiting, too tentative, too early, not doing enough soon enough.  Those mistakes are extremely costly and devastating.  But this group of people recognized that mistake at the beginning of last year and they did act with a lot of financial force across the G20.
 
     But there’s another mistake some governments have made over time to, in a sense, step back too quickly in the hope that — on the hope that it’s over.  And we want to do is continue to emphasize that we are going avoid that mistake by making sure we recognize that it’s only been a year since the world economy stopped collapsing — it’s only been a year of positive growth in the United States; some countries started growing much, much more recently.  And we’re still living with — you can see this in the number of unemployed not just in the United States but across many other countries.  You can see it in the excess capacity in factories around the world still.  We are still living with the deep scars of this crisis, and it’s going to take some time to heal those.  And I think we have to recognize that our capacity to make sure that we are growing in the future and that we are moving our fiscal positions back to a sustainable balance depends on our success in definitively repairing the damage caused by the crisis.
 
     Q    Mr. Secretary, when you answered the first question about fiscal policy, you turned the question around and made it a little more positive.  And I know you’re trying to play down the rift and I understand that, but on the other hand if Europe is focusing on austerity and the United States is focusing on stimulating its economy, the imbalances in the global economy are going to get worse.  How worried are you about that?
 
     SECRETARY GEITHNER:  I don’t — can I try it this way a little bit?  When we were all coming to London in April of last year, we came to a meeting where the world had written in advance of the meeting that we were in fundamental disagreement about whether we were going to focus on growth or financial reform; about whether countries were going to act together to support demand or not. 
 
     And look what happened in the wake of that meeting.  You saw not just in the United States, but in Germany, in France, in emerging markets around the world, basically countries adopted a common strategy, recognizing the lessons I just referred to.  And even on financial reform, much more in common than there is that separates us.
 
     So I would caution you against the characterization you began with, because I think if you listen to what leaders are saying and you look at what they’re doing, they are recognizing how important it is to get this balance right.  And that requires continued emphasis not just on the near-term growth challenges and financial sector challenges, but of course doing so in a way that is fiscally responsible over the medium term.
 
     Now, we’re going to come at this with different approaches because we’re in different positions.  And some countries — for some countries, it is very important.  Of course you’ve seen in this in Greece, is a good example, but also in Spain — very important for them to move very quickly now to reassure markets that they have the will to act to bring these deficits down, and they have no choice but to do that and that’s fully appropriate.
But if you look across the rest of the major economies, you see more in common I think than in difference.  So I would not overstate that difference in perspective.
 
     Q    Without overstating it, though, Germany and Britain seem to be focusing more on deficits right now.
 
     SECRETARY GEITHNER:  Well, again, I would look — again, the U.K. is in a somewhat different position than the rest of us as well, but I would look carefully at what Germany has done, and I’ll give you just one example.  And again, we came out of this more quickly and we’re growing more rapidly, so this is appropriate for the United States.  But look at the announced measured path of deficit reduction for the United States of America over the next three years relative to what the leaders of Germany are considering appropriate for Germany.  And if you look at those together, you’ll see ours is much steeper, appropriately so.  They’re actually being relatively careful in how they’re doing it.
 
     And so I won’t agree with the characterization you said.  And so when — obviously we come to emphasize the positive because we want to show a common understanding of these challenges, but it’s mostly because there’s more in common and basic agreement than the suggestion you made.
 
     Q    On the issue of imbalances, though, are you optimistic?
 
     SECRETARY GEITHNER:  On the imbalance side — over time we all say this crisis was probably caused by the fact that the world got way out of balance.  And one of the things we did in April was to come together and recognize that future growth for the world will depend on achieving a better degree of balance.  And what’s very encouraging about the shape of this recovery so far is, in the United States you see growth led more by investment than by consumption.  We’re saving more — households saving more, private sector saving more — and the amount we’re borrowing from the rest of the world has fallen sharply as a share of our economy, by more than half over that period of time.
 
     And just to show the opposite side of that, if you look at China is doing, growth in China now is much more driven by consumption and domestic demand than it has been in the past, recognizing China’s recognition that, for China, that is a better strategy for them to grow in the future than to rely as much as they had in the past on exports.
 
     Now, you don’t see that across all the major economies.  And part of what these leaders will be discussing is how to make sure that you see complementary changes in parts of continental Europe, for example, or in Japan, that will help give everybody more confidence that future growth there will come from domestic demand going forward.  And it’s fair to say that I don’t think that you’ve seen from those countries yet a set of policies that would, again, give everybody confidence that you’re going to see stronger domestic demand growth in those countries coming forward.
 
     And I think that’s a very important debate, but that’s a much more complicated debate than the simple question of how fast people move to restrain on the fiscal side.
 
     Q    You touched on this a little bit already, but can you point for us the picture of what would have if some of these countries pulled back their stimulus spending too quickly?  Can you give us of what that worst-case scenario would be like?
 
     SECRETARY GEITHNER:  Well, I think you can do that.  Again, what matters to everyone here is to make sure that these economies are growing in the future, the world economy is growing, and we’re acting to reinforce confidence that that growth is going to happen and be sustainable.  And again, that requires a balance between continued actions to make sure that we’re delivering on our commitments to repair the damage of the crisis, but also letting people understand that — and we all understand — that you’re not going to have growth in the future that’s going to be strong enough, healthy enough, unless people believe you have the political will to bring these deficits down over time.  And that’s our challenge, that’s our balance.
 
     But just to — a cautionary note.  Look at the details of reform plans and what they do for growth, particularly in domestic demand, and you’ll find that over time more important — more complicated but more important than the more easily accessible debates about what happens to the deficit side, because growth is a much more complicated challenge than the simple question of how you cut.
 
     Q    Can you give us a comment on the stress tests?
 
     SECRETARY GEITHNER:  What would you like me to comment on?
 
     Q    What sort of transparency you’d like to see out of the European –
 
     SECRETARY GEITHNER:  That’s a question for the Europeans, but again, as I said in my opening remarks, they announced last week I believe — and it’s a very important commitment — that they’re going to bring a level of transparency to their banking system that will allow them to improve confidence in the basic financial foundation, financial strength, of their finances. 
 
So, I mean, that’s important because, again, we all know that you don’t get growth without strong financial systems that can provide credit to businesses.  So I think that’s a very important step they — commitment they made at the highest levels in Europe.  But you should ask them about what shape that will take.
 
                       END             2:31 P.M. EDT