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02 February 2010

World Economic Forum debate: “A Roadmap out of the economic crisis”


French Economy Minister Lagarde strongly objected to the Bush administration’s decision not to bail out Lehman Brothers. Looking towards the future, she said, “We have avoided catastrophe and collapse of the financial system. Now we need to decide what to do next.”

Fareed Zakaria, editor of Newsweek International USA, began the televised session by noting that Christine Lagarde, Minister of Economy, Industry and Employment of France; and a member of the World Economic Forum’s Foundation Board, strongly objected to the Bush administration’s decision not to bail out Lehman Brothers, and wanted to know whether she still feels the same way. Lagarde answered that finance ministers had agreed not to allow the failure of institutions that had systemic importance, and that she still holds to this rule. “That is where we put our savings and our trust,” she said. Looking towards the future, Lagarde said, “We have avoided catastrophe and collapse of the financial system. Now we need to decide what to do next.”
Lagarde stressed that public unrest as well as pressures for protectionism will become a major problem if solutions are not found quickly. “We need to justify to taxpayers that supporting international trade is worth taxpayers’ money,” she said. “We need to move extremely fast in restoring public confidence.”

Uday S. Kotak, Vice-Chairman and Managing Director, Kotak Mahindra Bank, India, stressed that the next steps will require difficult choices concerning who ultimately pays for the crisis. “There will be pain,” he said. “But where do you stop the pain?” Kotak recommended letting equity shareholders pay the price for the banking system, while protecting depositors. Kotak said that a factor in the crisis is that banks had moved from personal knowledge of their clients to a kind of “institutional trust” which depended on rating agencies and auditors. Obviously that had broken down.
 
Jeroen van der Veer, Chief Executive, Royal Dutch Shell, Netherlands; and Co-Chair of the World Economic Forum Annual Meeting 2009, pointed out that most companies will not be able to keep from engaging in lay-offs, even though they know that it will contribute to the problem. “The behaviour of companies accelerates the crisis,” he said, “but we don’t really have a choice because we have to do what is best for the company.” Van der Veer cautioned against expecting solutions to work immediately. “Don’t think you’ll have a package today and things will immediately get back to normal,” he said. “It will take time.”
 
Rachid M. Rachid, Minister of Trade and Industry of Egypt, singled out protectionism as one of the major threats. He said that he was not encouraged at a meeting of trade ministers when a US representative announced that everything that had been on the table was now off the table. The change of Administration in Washington, he said, leaves everything open for renegotiation.
 
In answer to a closing question from Zakaria, Klaus Schwab, Founder and Executive Chairman, World Economic Forum, acknowledged that, from an economic perspective, this has been one of the gloomiest Annual Meetings since the Forum’s creation 39 years ago. But he also pointed out that the Annual Meeting following the attacks on the World Trade Center in New York also took place during a dark period. “We shouldn’t feel that there is no hope,” he said. “We can do it. The key is global cooperation.” Zakaria picked up on that theme: “I guess the message is, ‘Yes we can’,” he said.
 


© World Economic Forum


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