The gospel of growth

June 18, 2012, Monday/ 14:03:00

CANBERRA/SEOUL -- Almost four years after the start of the global financial crisis, the world economy remains fragile and unemployment is unacceptably high. There are roughly 200 million unemployed people worldwide, including nearly 75 million young people. Growth is weakening in many countries, risks are mounting, and uncertainty has intensified, owing especially to events in Europe. Only swift and sustained recovery can stem the rise in the human cost of economic stagnation.

As the G-20 meets in Los Cabos, Mexico on June 18-19, its challenge will be to shift public perceptions from pessimism and concern about the future to an optimistic mindset of growth and stability. We need resolute action to address the uncertainty confronting the global economy and to chart a path toward self-sustaining recovery and job creation.

We see two components to such a strategy. First, we need a clear message from Europe -- the immediate source of global economic concern -- that it is taking decisive steps to stabilize and strengthen its banks, and that it is focused on restoring growth while credibly committing itself to fiscal consolidation. A crucial element of restoring confidence in Europe is agreement on a “roadmap” for the eurozone to underpin its monetary union with a fiscal union and a banking union, including pan-European supervision and deposit insurance.

It is essential that Europe move quickly to ensure that its banks are adequately capitalized and backstopped. In this regard, we welcome the recent decision by Spain to seek financial assistance from the European Union to recapitalize its banks as required. Decisive steps to safeguard the banking sector's health are necessary not only to reduce some of the risks that are preoccupying markets, but also because healthy financial institutions are vital for economic growth.

Europe must have credible fiscal-consolidation plans to restore debt sustainability, but it is also essential that it has a growth strategy that includes policies aimed at boosting investment, freeing up product and labor markets, deregulating business, promoting competition, and building skills. These reforms, including deeper institutional integration, will be politically difficult and their benefits will take time to become fully apparent; but setting a clear pathway will underpin public confidence in Europe's long-term growth and cooperation.

We do not underestimate the magnitude of the reforms that Europe has achieved in recent years. Since the G-20's meeting at Cannes last November, for example, Europe has increased its financial firewalls by €200 billion ($252 billion), restructured Greek debt, taken steps towards strengthening its banks and banking regulations, established rules for fiscal discipline, and implemented a range of labor- and product-market reforms.

But the magnitude of the challenges confronting Europe implies an urgent need for far more decisive reforms. We are confident that Europe will act together to meet these challenges, and we will continue to support such efforts, because European stability and growth matter for us all.

Second, we need a clear message from the G-20 that all of its members are delivering policies for strong, sustainable, and balanced growth. To be meaningful, the message must be backed up with action: G-20 members must demonstrate that their policies are clearly directed toward restoring economic growth and creating jobs, and that they will be accountable for meeting their commitments in full. And world leaders must be unambiguous about resisting protectionism and opening trade and investment.

In particular, we believe that an international agreement on trade facilitation is the right step, as it would reduce export and import costs and restore momentum to global trade liberalization. The G-20 must demonstrate in Los Cabos that reform of the International Monetary Fund is continuing. That means that countries must deliver on their commitment to increase IMF resources by more than $430 billion, and that the Fund's quota and governance structure must reflect the ongoing global shifts in economic influence.

Economic growth and new jobs are crucial to improving people's livelihoods now and to ensuring the prosperity of future generations. The reforms needed to secure these objectives are not easy, and change will not happen overnight. But the world expects the G-20 to deliver.

*Julia Gillard is Prime Minister of Australia. Lee Myung-bak is President of the Republic of Korea. © Project Syndicate 2012