(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
JS-1115Good afternoon. I would like to thank Chancellor Gordon Brown for assembling such an illustrious group of participants for today's forum.
Today I want to talk about the joint responsibility the US and EU share in promoting a dynamic, growing world economy. The US and EU share particular challenges and we can be most effective when we work together to address them.
Cooperation by the G-8 to promote global growth and stability is at the top of G-8 agenda this year when the U.S. hosts the leaders Summit at Sea Island. The following year, when Prime Minster Blair will chair the leaders Summit, I hope we can be in a position to note substantial progress across all of our economies. The need for increased global economic growth, by the way, will be the top agenda item at the upcoming G7 meeting I will chair in Florida and the number one topic of discussion.
Let me provide a brief overview of our domestic situation. The US economy has faced tough challenges over the last three years -- 9-11, the collapse of the dotcom bubble, two wars, and corporate scandals. Yet we have managed to emerge with the shortest and shallowest cyclical downturn in the last 50 years, even while other major industrial economies were stagnant or declining.
Much of this is due to the fundamental strengths of the American economy and the American worker, whose productivity growth has averaged a 4.4% annual rate since the end of 2000, the fastest 11-quarter growth rate in 40 years (1963). It is also in large measure due to President Bush's tax cut package that put money in the hands of consumers when the economy needed it and set the basis for higher levels of capital formation and investment in the future.
But we are not satisfied with just weathering these storms. We are committed to policies that will support continued growth, prosperity and jobs in the US. President Bush has laid out an ambitious agenda for maximizing growth and job creation.
In his State of the Union speech, the President committed to making health care more affordable and its costs more predictable; working to prevent frivolous lawsuits from diverting money from job creation into legal battles; working to build a more affordable, reliable energy system; streamlining regulations and needless paperwork requirements; opening new markets to high value American products; preparing American workers for the demands of the 21st Century job market; and working to make tax relief permanent, so businesses and families alike can plan for the future.
All of these proposals point to the same end: create an environment that encourages flexibility, capital formation and innovation, and in turn leads to job creation, productivity, and higher living standards.
A word about our deficits. With the economic slowdown and recession that occurred in 2000 and 2001, the United States is experiencing a period of fiscal deficits. The tax cuts, starting in 2001, were timely and effective; they made the recession much smaller and much shallower than it would have otherwise been. With the recession, 9/11 and the resulting war on terror these deficits are certainly understandable and they are too large and they are not welcome and they will not last. Make no mistake; President Bush is serious about the deficit.
We must keep the overall growth of spending down even as we bolster security and fight terror. The deficit, at roughly 4.5% of GDP, compared with 6% during the 80s, is not historically out of range. If we stick to President Bush's strong pro-growth economic policies and sound fiscal restraint, we expect to cut the deficit in half, toward a size that is below 2% of GDP, over the next five years.
Let me shed a little light on how the President will do this. In the budget that will be delivered to Congress on February 2nd, the President will propose holding discretionary nonsecurity-related spending accounts to a less than 1 percent increase. This will be the fourth consecutive year of slowing nonsecurity-related spending under this Administration. This is the lowest proposed rate of increase since 1993. This is below the rate of inflation. Additionally, total annually appropriated spending will increase by less than 4 percent next year.
Let me turn to particular challenges of interest to you in the EU.
For the EU, the challenge of increasing growth is most pressing for the major economies in Europe where growth has lagged and where estimates of growth potential are not as high as they should be. The EU has put forward the goal in its Lisbon Agenda of becoming the most competitive and dynamic economy by 2010. That's a most commendable objective and we in the US don't feel threatened by this growth. Quite the contrary, we'd like to see all the major economies striving to be dynamic, productive economies. Increased global economic growth will lead to mutually reinforcing success.
Simply put, we are not fighting for a piece of the pie, we are striving to enlarge the pie and improve standards of living for people in our economies and throughout the world. Your growth is important to us and our growth is important to you. Global growth is not a zero sum game. Lets do all we can to make sure we all grow together.
The EU still faces a number of challenges on the path to the Lisbon goals, as the Commission outlined the other day. But, there has also been real progress. I commend Germany for passing the difficult labor market and tax reforms as part of its Agenda 2010 and France for last year's pension reforms. We hope this is the bow wave of reform in Europe that boosts productivity and growth to new, higher levels.
Examples of growth oriented reform and its benefits can be found within the borders of the EU as well as outside. In a recent OECD study of industrial economies, the UK had the least restrictive regulatory regime in an index that combined barriers to trade, administrative regulation and economic regulation. It's no coincidence that the UK was able to avoid the major slowdown seen in other large European economies in the last few years or that it ranks with the US in leading industrial countries in information technology investment as a share of GDP, a key to productivity growth.
The EC's own findings also show a clear path for how to improve productivity, namely lowering regulation, increasing expenditures on research and development, completing the integration of markets and promoting EU competition, and reforming financial services so that capital markets can respond to these policies by directing finance to dynamic, employment-producing enterprises.
Cooperation between the US and the EU can enhance each of our growth agendas and promote broader growth. Let me dwell on two areas when our cooperation can yield significant results - free trade and financial sector integration.
Free Trade
With the dramatic expansion of trade in recent decades, the world economy is more connected than ever before.
For the United States, this means that our success in creating jobs and sustained economic growth depends in no small measure on opening markets and reducing barriers to trade. The same is true for the EU. It is through free trade that all nations can benefit from each other's prosperity. Free trade means new markets for exporters while companies and consumers benefit from lower-priced imports.
Obviously, both the United States and EU and many others were disappointed in the Cancun outcome, but there are hopeful signs that we can get the Doha Development Agenda back on track again so that 2004 is not a lost year. But even as we ponder the next steps in the WTO, the United States continues to press an aggressive trade agenda to open markets regionally and bilaterally with willing partners. By moving forward on multiple fronts, we can exert leverage for openness and create a new competition for trade liberalization. Just yesterday, we completed trade talks with Costa Rica ensuring they will be part of the Central American Free Trade Agreement. And today, we begin negotiations with Bahrain.
The focus of the WTO negotiations should be the market access agenda -- agriculture, industrial and consumer goods, and services. I believe that the United States and EU agree that these areas have the greatest potential to promote economic growth. Given that services were first included in multilateral trade talks in the last round, the US and EU are particularly interested in raising the number of countries with services commitments and the quality of those commitments, including in financial services.
The Doha Development Agenda also places particular emphasis on integrating the developing world into the global economy so that they may begin to reap the great benefits of free trade. The United States, the EU, Canada, and many others, including the World Bank, share the view that developing countries need to reduce their own trade barriers substantially in order to realize these benefits.
US/EU Financial Markets Dialogue
The US and EU markets represent the lion's share of global capital flows, making the US-EU financial relationship critical to well-functioning global financial markets, and the positive implications that entails for saving, investment and growth.
US Treasury and European Commission financial officials, along with our financial regulators, have been working actively during the past two years through our Informal Financial Markets Dialogue to resolve problems caused by law or regulation to allow capital to flow more efficiently.
Our dialogue has focused on the European Commission Financial Services Action Plan (FSAP), an ambitious effort to quickly build the legal and policy infrastructure for an integrated European capital market. The US has a profound interest in its success both to promote faster growth in Europe and a more robust transatlantic capital market that rewards competition and innovation. We also have an interest in seeing that US financial institutions in Europe will be able to compete fairly in the integrated European capital market. The EU also cares deeply about financial market developments in the US, including corporate governance issues and audit oversight. Together we also are addressing issues such as the supervision of large complex financial institutions, the evolution of Basle II and clearing and settlement processes.
It is not always easy. Both sides have different legal, historical, and cultural traditions. Recognizing this, our overarching goal in the financial markets dialogue is to see through these differences, and to achieve our common objectives in substance. We know that if this process is managed successfully, it is a win-win for the US, Europe and the world.
Thank you.