WHY GOVERNMENTS MUST INVEST IN GROWTH AND ENHANCE TRUST ?
The situation is grave.
While a decade ago, most fragile states were low – income countries, today almost half are middle – income countries.
In Europe, we are still living a time of exceptional challenges.
Reversing the damage caused by the economic crisis which has taken on several names – from subprime crisis and financial crisis to great recession – and which started 7 years ago remains a major challenge to most governments.
Even if growth has resumed a little bit and confidence has now improved , the recovery remains hesitant, reflecting remaining fiscal pressures, high unemployment and the lingering effects of the euro crisis on balance sheets and credit conditions.
Old ways of thinking won’t bring developed countries back to economic life.
Trust is essential for economic and social interactions. But still numerous scandals are creating a climate of suspicion.
It is of the utmost importance to re-create the trustworthiness on which trust depends.
Our economies are weakened and endangered not only by our financial deficits, but also by a deficit of trust.
Recent years have brought a flood of stories about dubious standards in business.
When it comes to confidence in banking and finance, there are good reasons why the public has lost confidence in our markets and institutions over the past few years.
Warning signs of banking sector vulnerabilities in some countries are still a major concern.
Sizeable reforms are still needed before confidence can be fully restored.
On top of the list governments should ensure that banks and bankers – not taxpayers – pay the price of failure and are held fully accountable for their actions.
At the same time, there is general recognition that corruption affects development and growth.
Anti – corruption reforms should be encouraged by changing elite incentives.
Also, when it comes to the debate over tax erosion and profit shifting which has recently reached the highest political level but is still an issue on the agenda of lots of advanced economies, time has come to definitely fix it.
After all, developing rules that support the efficient operation of global markets should still be a key objective all over the world.
This involves providing a policy framework that achieves a fair allocation of taxing rights between countries.
Fiscal consolidation strategies must continue for a while even if they have been questioned for adding to the woes of already struggling economies, and leading to even higher unemployment and more social hardship.
Weighted down by the legacy of the crisis, our developed economies are facing deep challenges like a faltering labor supply and slowing innovation.
The need for growth has never been greater.
We need to boost the recovery of our economies and move to a stronger trajectory for jobs and inclusive and green growth.
Reforms are still essential to foster job growth.
Monetary policy needs to be very accommodative in the euro area where deflation risks have risen.
Also to guard against still weak bank balance sheets, fragile public finances and the uncertain political situation in some vulnerable countries in the euro area, the establishment of a fully – fledged banking union needs to be expedited and weakness in bank balance sheets must be credibly identified through permanent stress tests and asset quality review of euro are banks and swiftly corrected.
In conclusion, credible steps towards banking union and greater transparency are required to stay ahead of the game and to ensure that fragile states in Europe are not left behind.