“Europe will be stronger after crisis”
RT: The most frequent complaint heard is about the weather. Have you been caught in the rain here, while in St. Petersburg?
Joaquin Almunia: This time I have, unfortunately, no time to pay a tourist visit to St. Petersburg, I’m only here to work and to discuss. But in my previous visit to St. Petersburg, it was also June, it was during the year of the Russian presidency and it was fantastic weather and at that time I enjoyed two or three days here in the most beautiful city of Russia and probably of the world.
RT: During his speech Dmitry Medvedev said that this dreary weather may also reflect economic realities in the world today. Have we weathered the economic storm already or is the worst yet to come in your opinion?
JA: No, I think we have good arguments to say that the worst is behind us. The fourth quarter of 2008, the first quarter of 2009 has been very, very bad for everybody, with the economy in freefall, with very negative figures coming from world trade, very negative figures for industrial production, investment [and] confidence. Everything was of course very bad and of course unemployment was increasing, is increasing. But now, in April-May, we are starting to see some good news. Confidence is improving and this is very important; world trade is improving; in some countries, activities [are] regaining momentum – this will trigger external demand. So I am now more optimistic, but at the same time, I am realistic and the situation is still very difficult. We have to fix serious problems in the financial markets, not all the financial markets have regained activity at the same pace. We have to tackle unemployment – that is a very serious matter of concern indeed, for many citizens. And we need to improve the functioning of our economies at the same time that we withdraw the stimulus, the fiscal stimulus, and the monetary stimulus. So we have a lot of work to do, but yes, the worst is behind us.
RT: Some say that making economic forecasts is about as difficult as making predictions about the weather, but still when do you think we will see the return of growth in the global economy?
JA: In our forecast, that as in all the other cases, may not always be right, and sometimes are wrong. Unfortunately, in the past couple of years they were wrong, they were less pessimistic then the final figures but, in this case, I think we are approaching a situation of less uncertainty, so we can rely more on forecasts. And we are presenting an outlook for next year, where in the second quarter of next year, in 2010, we can approach positive territory in the GDP growth.
RT: Now you know that some countries, including Russia, believe that they have sort of become involuntary victims of other countries financial games. Now do you agree that the U.S, and the EU for that matter, have to bear the brunt of responsibility for the current downturn?
JA: I think there are a lot responsible for this crisis, because there were a lot of risks that were increasing – we knew that those risks were increasing, that imbalances were growing – and nobody, and I say nobody, was able to say, “Eh! We should tackle these risks. We should adjust these imbalances in orderly way.” All the members from the IMF board were informed of the risks, all the members of the Financial Stability Forum were analyzing the risks, all the members of the Bank of Settlements in Basel were aware of the risks, and all the members of the European Union. And on top of it all this, the private sector, the financial institutions, the banks, the insurance companies were also aware of the risks, or they were irresponsible, or they were aware of the risks that were growing in their balance sheets. The question is that we were living in a period of deregulation, self-regulation, and strong confidence in the capacity of the markets to adjust. Everybody was benefiting off the very low coast of financing, abundance of liquidity and these situations are very, very dangerous, because when the party is at the best of the music, the dances, the drinks, nobody dares to say: “Eh! We should stop now before it’s too late.”
RT: So you don’t think it could have been avoided?
JA: Well, should have been avoided if we would have built the adequate systems of surveillance, of warnings, of institutions; avoiding the growing evolution of risks, the systems of big imbalances that were not being adjusted. But I remember when we were discussing at the IMF, or under the umbrella of the IMF, the evolution of global imbalances, we were together: the U.S., the Euro area, Japan, China, the oil producers, we established the diagnoses which were the imbalances that we need to adjust. Or when the G8 met several times analyzing the situation – those countries were aware of this. The financial institutions at the global level at the multilateral level were aware of this. The private sector managers were aware of this. But: nobody had under their shoulders the responsibility to say: that’s all we should stop we should adjust. And now we need to learn this lesson and not to forget which were the origins of this crisis.
RT: It looks like there is another gas dispute looming between Russia and Ukraine. A couple of days ago Putin said there may be another disruption of gas supplies to the EU later this month. I would like to ask you about the commercial aspect of this dispute. Russia wants the EU to get involved and maybe pressurize Ukraine into observing its obligations. What do you think?
JA: I think that there are three parties involved, and the three should contribute to a solution. And we cannot find three different solutions, we should find one solution among the three. First, the producer of energy: Russia. Second, the transit country: Ukraine. Third, the consumers or the users of this energy: the EU. So, the three should contribute to a solution.
RT: What role does the EU have to play here?
JA: We are playing a role, we are discussing with Ukraine, we are discussing with the Russian authorities, and we are trying to build this compromise. In part, it's a political question. Partially, we need to adjust the different positions to find an adequate compromise. At the same time there are economic reasons. Everybody should be ready to contribute. The question is to discuss how big the contribution of the different parties should be.
RT: The Russian government has long been trying to turn the Russian Ruble into a regional reserve currency, and one of the ways to do that would be to price Russian export commodities like oil and gas in rubles, and to encourage others to pay for these export commodities in rubles. What do you think about this idea?
JA: I think that the commodities in the global economy are denominated in dollars, and its logic that to get confidence in the transaction in those markets – at global markets by definition – the reserve currency, or the most important currency in the world, will serve to denominate the price. If not, there will be a lack of confidence, and there will be additional problems. This question of currencies is not a question that is easily solved by political decisions. The markets and the confidence play a very important role.
RT: In what way do you think the EU would benefit from Russia's entry to the WTO?
JA: I think everybody will benefit from free movement of goods, services, persons and capital. I firmly believe that these freedoms – economic movements, economic transactions – benefit everybody: the buyers and the sellers, the exporters and the importers, investors and those who receive the investment. The global economy, as all the markets, needs rules. The rules of the game that will be respected by everybody. The WTO is a key institution to establish the rules of multilateralism in trade of goods, services, and investments. An economy as important as Russia’s, needs to be integrated in this world. If not, all of us, Russian and non-Russians, will lose opportunities, and we will not maximize our benefits.
RT: Some analysts say the recession could present a threat to the idea of European unity. When times are difficult, some countries tend to become more reserved. Do you have any concerns that the crisis may undermine the idea of a United Europe?
JA: No. The crisis creates difficulties for everybody – for citizens, for individual countries, for companies, and also for the EU as such. But I'm very confident that from this crisis we will get out more united, with stronger integration. It’s very difficult to imagine how our economies and the financial sector will be organized after the crisis has finished. But I’m convinced that Europe will be stronger after the crisis.