The new role of governments and finance
According to the Luxembourg Minister of Finance, Luc Frieden, redefining finance and the role of governemens is the key to preventing another financial crisis in the future.
On the occasion of the LFF financial mission to Asia, minister Frieden took part in a panel discussion about possible ways of revamping the world financial system so as to serve the real economy better and restore investor confidence in the financial markets. This “policy dialogue”, which was organised on the opening day of the Asian Financial Forum (AFF) in Hong Kong, brought together Professor Vittorio Grilli, Minister of Economy and Finance from Italy, Dr Bahk Jaewan, Minister of Strategy and Finance from Korea, Mr Takehiko Nakao, Vice Minister of Finance for International Affairs and Ministry of Finance from Japan and Mr Mahendra Siregar, Vice Minister of Finance from Indonesia.
Minister Frieden gave his perspective on how to restore competitiveness in a world that is highly interconnected. “Policy makers and the private sector are both responsible for ensuring that such a crisis doesn’t happen again”, he said. This demands a redefinition of finance and the role of governments and the two must go “hand in hand”.
“Before the crisis, greed and speed were key elements to achieve growth. It was certainly not sustainable: short term and high risk were taken to generate profit”, said Minister Frieden. ”If we want to prepare for the future, we have to think long term and less risky in order to prevent this happening again”.
Finance has to return to less complex ways of operating, he continued. The goal of financial services must be to serve the real economy. New products still need to be developed but they must be transparent. The perspective must be long term, so as to avoid abuses and excesses and, above all, ethical standards of behaviour are important. “The 2008-2009 crisis showed that we need regulation, but regulation comes after ethical behaviour”.
Redefining the role of governments
Governments have to play a new role, continued Frieden. Prior to the crisis, the keyword was: no government. Then, during the crisis, people asked governements to intervene in order to rescue banks and guarantee client deposit schemes. We must focus on long term regulation and find the right balance between regulation and innovation. “Better supervision and better coordination between the supervisors can achieve a lot; but at the same time, regulation should not prevent us from being innovative and finding new ideas to better serve the clients”.
Minister Frieden also pointed out that we are interconnected by our financial centers which play an international role and which need to redefine themselves. “Financial centres like Hong Kong and Luxembourg, that have traditionaly been internationally focused, have to join their forces to help set up international standards, to make sure that people around the world have the choice where to invest and with which products they can stimulate growth”.
He said he would like to encourage financial centres like Hong Kong, Luxembourg and Switzerland to join their force in order to make sure that international financial centers play an increasing role. By doing so, they will contribute to growth in an interconnected world. In this context, he thinks that Europe should become stronger and get more power to intervene in difficult contexts.
“People should stop thinking that banks and financial institutions are responsible for everything”, he pointed out. On the contrary, people should see a constructive role for financial institutions and the public and the private sectors should think together in partnership how they can best serve the society as a whole.
The Luxembourg Minister of Finance concluded by saying “Yes, we need strong, safe, stable and trustworthy international financial centres. Innovation is really important and we can help it with well thought out regulation. Events like the Asian Financial Forum are excellent places to discuss these issues”.
The Asian Financial Forum (AFF) brings together some of the most influential members of the global financial and business community to discuss developments and trends in the dynamic markets of Asia during two days. The event helps to build up contacts, gather the latest market intelligence, and explore business opportunities in Chinese mainland and the rest of Asia. The fifth AFF, in January 2012, attracted more than 2,000 participants and 400 journalists from 32 countries and regions.
Following this first stage in Hong Kong, the Minister, accompanied by a delegation of 60 Luxembourg businessmen, will visit Beijing where a financial seminar will be held on Wednesday. VM