World leaders will assemble in London this week to clear away the obstacles to a global economic recovery. And why does the meeting of the G20 matter? Quite simply, because millions of jobs all over the world depend on countries taking action together to tackle the deepest global financial crisis we have seen for generations.
The meeting in London must be driven by determination. We must build a sustainable future. We will not sort out everything in one day, but the world expects us to show leadership and strength of purpose.
Governments can make a difference. We must avoid the mistakes of the 1930s. By putting in place the right policies, recovery will come. Which is why the world economy is still expected to double over the next 20 years. There is no overnight solution. But a more prosperous world is possible. And we will only achieve this if we work together.
The G20 countries represent more than 80 per cent of the world economy. No problem should ever be too great or too difficult for us to tackle. There are four things we can do: support our economies; kick-start the flow of credit to help businesses and see a resumption of bank lending; get international trade going again; and support emerging and developing nations.
It is not a question of finance ministers turning up to the meeting this week, each proposing a new budget. Rather, we must agree to do more if necessary. Not necessarily every country in the same way or at the same time, but we must sign up to whatever is necessary to prepare for recovery. That is what the G20 finance ministers and central bank governors agreed to three weeks ago. And countries across the world have already put in place the biggest fiscal stimulus ever agreed.
We must get credit flowing again because this is an essential precondition if we are to see an economic recovery. Millions of jobs and businesses depend on it. Since October, many countries have taken massive action to prevent the collapse of their banks and support lending. Now we need to help the banks deal with those assets that cannot be valued or sold. Individually and collectively, the G20 must agree a common approach. Here, we have taken action. So have Germany, Japan and the US, as well as other countries.
But as well as cleaning up banks' balance sheets – an essential first step to rebuild confidence – we also need to reform banks' culture. There has been a fundamental breakdown of trust in the global financial system. Governments, regulators and the industry itself need to work together to rebuild that trust. President Obama was right when he says that "we can't afford to demonise every investor or entrepreneur that seeks to make a profit". But we have a duty to ensure that the public interest is safeguarded. Banks' boards need to focus not on short-term profits but long-term wealth creation.
Alongside this change in culture, there must be effective regulation that deals with the management of risk, working across borders and supporting the economy. More has to be done. Lord Turner has set out his proposals. The US Treasury Secretary Geithner detailed his proposals for reform in the US on Thursday. And I will be publishing my proposals around the time of the Budget.
We must support international trade and reject protectionism. Many businesses today are unable to get the funding they need to sell their goods abroad. Ninety per cent of world trade relies on these "export credits" – but that credit has dried up.
So we must urgently agree on how best to tackle this shortfall in trade finance, which some estimate amounts to hundreds of billions of dollars. We need international co-ordination between G20 countries, maximising the availability of existing mechanisms, as well as a completely new international facility.
It is a challenge for the G20 summit to recognise the problems faced by emerging and developing countries. Some estimate that capital flows this year will fall by more than 80 per cent compared to their peak. The World Bank estimates that 129 developing countries are facing a financing shortfall of hundreds of billions of dollars. Ninety million more people will already fall into poverty as a result of the crisis. The emerging economies with whom we trade – and which accounted for over 50 per cent of global trade growth in 2007 and will provide the major source of export market growth this year for the advanced economies – are critical to the global recovery. So it is a moral imperative, as well as in our economic interest, to act.
This is why we need substantially to increase resources available through the IMF and multilateral development banks, to shore up their banking systems, and support lending, trade finance, investment and social support. We must seize the moment and act together to build a strong and sustainable global economy. That way we will all reap the ultimate reward: a greener, fairer and more prosperous world.