Vabariigi Presidendi kõne Davosi majandusfoorumil
40th World Economic Forum
Davos – Wednesday, January 27, 2010
Ladies and Gentlemen,
May I begin by thanking Professor Schwab and all the organisational staff for inviting me to give the
opening address to this 40th Annual Meeting of the World Economic Forum.
Let me make things perfectly clear : as a political leader, I have not come here to teach, but to learn
together from the lessons of the crisis. And why must we do this ? Because we are all responsible for
the crisis. And we are all responsible for the world we are going to leave to our children.
Ladies and Gentlemen, without intervention by the States, everything would have collapsed. This is
not a question of liberalism, of the primacy of the state, of socialism, of left or of right, it’s a reality.
And if we were not to draw the conclusion from the events of one year ago that we must change our
ways, we would be irresponsible.
This crisis is not just a global crisis.
It is not a crisis in globalisation.
This crisis is a crisis of globalisation.
It is our vision of the world which, at a given moment, revealed its failings.
So, it is our vision of the world that we must correct.
There can be no prosperity without an efficient financial system, without the free circulation of goods
and services, without competition that challenges guaranteed revenue sources.
But finance, free trade and competition are means, not ends in themselves. Let us not confuse the way
we do things and the goal we wish to pursue.
From the moment we accepted the idea that the market was always right, unconditionally, without
reservation and without limits, and that no other opposing factors need be taken into account,
globalisation skidded out of control.
Let us look at the root of the problem : it was the imbalances in the world economy which fed the
growth of global finance. Financial deregulation was introduced in order to be able to service the
deficit of those who were consuming too much with the surplus of those who were not consuming
enough. The perpetuation and accrual of these imbalances was both the driving force and the
consequence of financial globalisation.
Globalisation first took the form of globalisation of savings. I would like to say very clearly that the
globalisation of savings gave rise to a world in which everything was given to financial capital and
almost nothing to labour, in which the entrepreneur was displaced by the speculator, in which those
who lived on unearned income left the workers far behind, in which the use of leverage – a term that
was on everyone’s lips – reached unreasonable proportions ; and all this created a form of capitalism in
which taking risks with other people’s money became the norm, allowing quick and easy profits but
all too often without creating either prosperity or jobs.
One of the most striking characteristics of this type of economy is that, within it, the present was all
that mattered and the future counted for nothing. The steady depreciation of the future could be
inferred from the exorbitant demand for high yields in the present. Those yields, inflated by leverage
and speculation, were the discount rate applied to future revenues : the higher they rose, the lower the
value of the future fell. We wanted everything, and we wanted it immediately.
The same depreciation of the future could be seen in accounting practices. Extraordinary ! Ladies and
Gentlemen, we got to the point where we valued the assets of a company at market price, forgetting
that the market is constantly fluctuating, in line, for instance, with market booms. When the markets
were on a high, balance sheets were revalued and revaluations of the balance sheet in turn fed a new
high. When confidence fell, balance sheets fell and the fall in the value of balance sheets then pushed
share prices down.
During the financial crisis we saw, up close, the damage done by that kind of accounting, when the
collapse of the markets led to a collapse in the banks’ capital reserves and further tightened the credit
crunch. And we said : "but watch out, the banks are worth nothing any more, they can no longer lend.
So, companies could no longer secure credit because no one would lend them anything. No one would
lend anything because the value of the banks had disappeared. The value of the banks had disappeared
because it was marked to the share price of the day – worse, the share price of the afternoon, the
morning, that hour, this minute.
Our entire system of representation had been falsified. May I say here, and please excuse my putting
forward this rather simple idea, that the economic value of a company does not change from one
second to another, nor every minute, nor every hour… To gain a clear idea of just how absurd that
kind of accounting can be, we need only think of the fact that, in a mark-to-market system, a company
in trouble can report a profit simply because its diminished credit rating has reduced the market value
of its debts ! What a great idea !
Our entire system of statistical assessment was also distorted.
In the statistics, we noted an increase in revenues.
But in real life, people saw widening inequality.
That was what we saw in real life ; in the statistics, the standard of living was rising, but meanwhile the
number of those feeling ever more keenly the hardships of life was constantly increasing.
Let us read through the report from the Commission led by Joseph Stiglitz, Amartya Sen and Jean-
Paul Fitoussi on the measurement of economic performance and social progress : to ask ourselves
questions about how we measure these things is to ask ourselves what our goals are.
Such reflections must not be the exclusive province of experts and statisticians. We have to leave
behind the culture of experts who talk only among themselves, each in their own field.
We have to learn to think things through together. They are not just technical problems. And we must
do it because if we don’t, we are taking indefensible risks with the future. If we do not change banking
regulation, if we do not change the prudential rules, if we do not change the accounting rules (and
these are not just technical questions, not just questions for the experts), where are we taking the
capitalism we espouse ? What do we want to make it ? What are the goals we pursue ?
We will never put an end to hunger in the world if we do not succeed in stabilising the prices of raw
materials, which at present are completely erratic. This is not just an issue for the experts.
We will not save the future of our planet if we do not pay the true price of scarcity. That is not just an
issue for the experts. It concerns us all.
We will not reconcile our citizens to globalisation and to capitalism, if we are not capable of offsetting
market forces with counterbalances and corrective measures.
Lastly, by discarding all our responsibilities in the market, we have created an economy which ended
up running counter to the values on which it was based.
For instance, by over-mutualising risk, we diluted responsibility. If risks are shared ad infinitum, in the
end, no-one is responsible. If no-one is responsible, we are no longer in a market economy.
By placing free trade above all else we have weakened Democracy, because citizens expect
Democracy to protect them.
By prioritising short-term logic, we have exhausted non-renewable resources and damaged the
environment. Sustainable development cannot be achieved if immediate profit and value for
shareholders are our sole criteria. I’m not saying that these criteria are not legitimate – I’m saying they
cannot be the only criteria.
And what did excessive deregulation bring ? It brought dumping and competition that was no longer
fair -unfair competition. We have encouraged globalisation based on external growth, with everybody
trying to grow by taking the businesses, the jobs, the market share of others, instead of by working
harder, investing more, increasing productivity and enhancing our capacity for innovation.
The globalisation we dreamed of at the outset was the kind where, instead of taking from others
through monetary, social, fiscal or ecological dumping, each of us would found development on social
progress, increased purchasing power, and improvements in living standards.
Whether the venue is the ILO, the IMF, the World Bank, the FAO or the G20, at bottom, Ladies and
Gentlemen, we are always talking about the selfsame thing, seen from different points of view -the
great question of the 21st century : how can we return the economy to the service of mankind ? This is
the question that all leaders must answer. How can we act to ensure that the economy no longer
appears as an end itself, but as a means to an end ? How can we move towards globalisation in which
the development of each will assist the development of others ? How can we build a more cooperative
globalisation – because today it is too conflictual.
Let us be clear about this – this is a point on which I want to be understood : the question is not to ask
ourselves what we will replace capitalism with : rather, it is : "what kind of capitalism do we want ?".
The crisis we are experiencing is not a crisis of capitalism. It is a crisis of the denaturing of capitalism
Capitalism has always been inseparable from a system of values, a conception of civilisation, an idea
Purely financial capitalism is a distortion that flouts the values of capitalism. But anti-capitalism is a
dead end that is even worse. No solutions can be found in anti-capitalism. There is no other system
than the market economy.
But we will save capitalism and the market economy, by rebuilding it, by, if I dare to use this word,
restoring its moral dimension. I know that this expression will call forth many questions.
What do we need, in the end, if it is not rules, principles, a governance that reflects shared values, a
common morality ?
We cannot govern the world of the 21st century with the rules and principles of the 20th century.
We cannot govern globalisation while relegating half of Humanity to the sidelines.
We cannot make decisions about globalisation without India, without Africa, or without Latin
America. That is madness.
We cannot look at the post-crisis world in the same way as the world before the crisis.
The world of tomorrow will not be that of yesterday.
We must assume our responsibilities. Dear friends, there are indecent behaviours that will no longer be
tolerated by public opinion in any country in the world, even the largest.
There are excessive profits that will no longer be accepted because they are without common measure
to the capacity to create wealth and jobs.
Let us take this a little further. There are remuneration packages that will no longer be tolerated
because they bear no relationship to merit. That those who create jobs and wealth may earn a lot of
money is normal, there is nothing shocking about it. And this is a message that we need to pass on.
What is profoundly abnormal is that people who earn a great deal of money when things are going
well, consider it natural to carrying on earning a lot of money when things are going badly. That is
unacceptable. High remuneration for high responsibilities. People who contribute to destroying jobs
and wealth without any adverse effects for themselves – that is morally unacceptable.
I would like to thank the two people who applauded there. You know, I wanted the chairman of a large
French bank to tender his resignation, because one of the employees of this bank, acting alone, was
guilty of misuse of funds that cost this bank several billion euros. It is not normal that when this kind
of dysfunction occurs, the person stays in place – if they do, we are no longer in a system based on
responsibility. But I also defended a French industrialist who is taking over at the head of a large
French company, with a larger salary, because he is a man whose competency is recognized.
The same for bonuses. When a list of bonuses is drawn up for all those who helped a company make
money, that’s fine. But when the company loses money, I don’t want someone to explain to me that it’s
possible to make a list of people who deserve bonuses, but not a list of those who deserve the opposite.
When you win no matter what happens, we are no longer in a market economy system. We are
deceiving people, and that is indefensible. Those who act in this way, Ladies and Gentlemen, are
destroying the values of the market economy that we wish, together, to defend. It is a caricature of
what we defend and a tiny minority can, in the eyes of international public opinion, distort a system
that has proved its worth.
In the future, there will be a much greater demand for income to better reflect social utility and merit,
much greater demand for justice, a much greater demand for protection.
So, Professor Schwab, I believe that we have no choice in the matter. Either we change of our own
accord, or change will be imposed on us. By what ? By whom ? By economic crises, political crises and
social crises. If we choose to do nothing, the system will be swept away, and it will have deserved
Either we are capable of responding to the demand for protection, justice and fairness through
cooperation, regulation and governance, or we will have protectionism, isolationism and "every man
for himself." I am for free trade and free exchange, but can anyone claim that public opinion will
accept that some countries can ignore the rules and flood the markets of other countries that respect the
rules ? Protectionism, which is something to be avoided in any case, will result from this type of
The G20 foreshadows the planetary governance of the 21st century.
Without the G20, we would have seen the triumph of "every man for himself." Without the G20, it
would not have been possible to regulate bonuses, close down tax havens and change the rules of
But I would like to say one thing, here in Davos : it’s great to make decisions, but these decisions must
now be implemented ! I would like to seize the opportunity to affirm that if we are seeing signs of
recovery heralding the end of the global recession, this should not encourage us to be less daring ;
rather, we must be even bolder. Even bolder so as to reform our systems of social protection, clean up
our public finances, stringently prosecute the war against tax fraud, invest in the future. If we do not
do this, the recovery will be only a short respite.
So, the promises made must be kept.
Let me give some examples. If the absolutely crucial debate on accounting standards gets bogged
down, if the private agencies to which we have delegated regulatory power deliberately flout the
mandate given them by Heads of State and government, and we let them get away with it, there will be
nothing left of the credibility of the G20. And if the credibility of the G20 disappears, we will lose the
beginnings of world economic governance, and that will be disastrous.
If competition is skewed by prudential rules that remain very different from one country to another,
from one continent to another, we will achieve the opposite of what we wanted. For instance, we must
come to an understanding around a common definition of capital, and if we fail to do this, then many
players will consider it normal to return to the habits they had before the crisis ? I will not be satisfied
with purely symbolic and political stances ; I will insist that these decisions become reality.
How, for instance, in a competitive world, can we insist that European banks have four times more
capital to cover the risks of their market activities, without demanding the same of American or Asian
banks ? Who could understand that ? It would be scandalous and we cannot accept it.
How can we accept the obligation for banks to retain in their balance sheets a portion of their
securitised loans if this obligation is not included in the regulation of G20 member countries, when
this principle was adopted by unanimous agreement ? We cannot accept it. But the difference is that
France will not, for instance, say : "Oh, I was waiting for the others to do it first !" We will do it, we
will comply scrupulously with the rules. But we will ask international public opinion to take note, and
those who will not apply the rules that we have defined jointly and adopted unanimously, will have to
explain themselves before public opinion.
If we devise standards that do not draw the lessons of the crisis and that lead long-term investors to
scale down their equity portfolios – which is improbable -, then we must not be surprised that market
prices become even more unstable and that a large number of companies find themselves even more
threatened by speculative pressure. If the lesson we learn from the crisis is to ask investors to invest
less in equities, we have failed to understand what happened one year ago.
Failing to do what we decided would be an economic error, a political error, a moral error.
Basically, we all know very well what we have to do together.
We must do away with a system without rules that drags everyone down and replace it with rules that
draw everyone up. Now, I know that as a Frenchman, I am suspect on this point, but, please, can we
not try to pass on this reasonable idea ? That if too many rules kill dynamism, then the absence of rules
kills capitalism ! Surely this is not an idea that is difficult to get across on all continents !
This doesn’t mean having the same labour legislation everywhere, that’s obvious.
But at the same time, here in Davos, I would like to ask this question. How can we accept that some 50
Member States of the ILO – the ILO ! -have not yet ratified the eight conventions defining the
fundamental rights of labour ? I understand very well that a country that is not a member of the
International Labour Organisation does not adopt these standards, but when one is a member of an
organisation, when one adopts the rules but does not ratify the standards – who could then believe in
your word ? What kind of a system is this ? It’s not regulated globalisation, its the law of the jungle.
In Copenhagen, quantified commitments on climate change were made by all the big countries. How
can we ensure these commitments are respected without the International Environment Organisation
for which France has called ? How can we not see that the possibility of adopting a carbon tax at
borders against environmental dumping would, without any doubt, constitute a strong incentive for
each country to respect the common rule ?
The crucial advance, to my way of thinking, would be to put environment law, labour law and health
law on the same footing as the law of trade. This would be a revolution in world regulation -it would
imply that specialised institutions can intervene in international – and notably commercial – disputes
through preliminary questions to be decided before an action can be brought. The international
community cannot continue to be schizophrenic – yes, we are schizophrenic ! We disown at the WTO
or the IMF what we decided at the ILO or the WHO. But these are the same people ! These are the
same countries, the same leaders – we cannot deliver, in the same year, two completely different
messages depending on which organization we stand before. This is not the way to restore trust ; this is
not the way to assume our responsibilities.
Of course, we must help the poor countries.
Of course, the question of innovative financing is central, given all the money we committed in our
budgets to avoid disaster. We cannot avoid the debate on a tax on speculation. That we wish to restrain
the frenzy of the financial markets to finance development aid – this is good news and I would like to
say how much I support the initiatives of England and of Gordon Brown.
To conclude with this point, there is another question we can no longer avoid. I know I am talking to a
discerning audience, but this question must still be asked. What role do the banks play in the economy.
Banking is not a rude word. What is the banker’s job ? Let’s get back to basics : the banker’s job is not to
speculate, it is to analyse credit risk, assess the capacity of borrowers to repay their loans and finance
growth of the economy. If financial capitalism went so wrong, it was, first and foremost, because some
banks were no longer doing their job. Why take the risk of lending to entrepreneurs when it is so easy
to earn money by speculating on the markets ? Why lend only to those who can repay the loan when it
is so easy to shift the risks off the balance sheet ? The very concept of "off-balance-sheet" is something
I had difficulty understanding, and when I did understood it, accepting. Why make rules if a whole
part of your activity is outside the rules, off the balance sheet ?
President Obama is right when he says that banks must be dissuaded from engaging in proprietary
speculation or financing speculative funds.
Ladies and Gentlemen, if we perpetuate the imbalances that are the root of the evil, we will not
succeed in our goal. Countries with trade surpluses must consume more. Countries with deficits must
make an effort to consume less and repay their debts.
And now, another tricky subject. Currency : do we have the right to talk about currency ? For me, it is a
duty, I do not understand that talking about currency is in itself a problem. Is it not always a problem
when we do not talk about things ? When we refuse to think about them ? Currency is central to these
imbalances. We cannot put finance and the economy back in order if we let the disorder of currencies
persist. Exchange rate instability and the under-valuation of certain currencies militate against fair
trade and honest competition. This is just common sense. Employment and purchasing power
constitute the adjustment variable for correcting what I would call – and please excuse the expression
monetary manipulation. The prosperity of the post-war era owed a great deal to Bretton Woods, to its
rules and its institutions.
So, today, we need a new Bretton Woods. We cannot have, on the one hand, a multipolar world and,
on the other, a single benchmark currency across the globe. We cannot, on the one hand, preach free
trade and, on the other, tolerate monetary dumping. France, which will chair the G8 and the G20 in
2011, will place the reform of the international monetary system, which is a fascinating and absolutely
crucial subject for every country in the world, on the agenda. I hope that it will be a major issue at
Davos, in our 41st meeting, for instance.
Until then – and I have come to the end of my address -we must manage, prudently, the exit from
measures aimed at supporting the economy and the withdrawal of the surplus liquidities injected
during the crisis. I am convinced that too abrupt a tightening would result in another global collapse.
What remains to be done is to bring into being a new growth model, to invent the State, the company and the city of the 21st century.
Dear friends, a few years ago, people were predicting the end of nations and the intellectuals talked of
the advent of nomadism. But in the crisis, I would like to pay tribute to companies, the most globalised
companies, and the most global banks, which rediscovered, with almost disconcerting ease, that they
had a nationality. None of them got it wrong ! The thread did not break – everyone knew quite well
where they where. And the discourse : "We are big companies that straddle continents and we have no
nationality" – at the first ill wind, that discourse disappeared.
A few years ago, people were announcing the decline of organisations, the end of companies. We
wanted to apply to companies the principles of portfolio management. Today, we are, fortunately,
rediscovering the fact that they are, first and foremost, human communities and living organisations,
that need a leader, a head, a boss, an entrepreneur, and that depend on the know-how of their
employees. A company is a living organism, it’s a community. It breathes. It creates wealth. It must
have a purpose which is not simply a share price, even if the share price is important.
A few years ago, people were predicting that the city would spread, break up, and with it social
cohesion, human relations and community relations. We are rediscovering the need for community, for
Basically, it looked as if citizenship would dissolve in the global market. But it has found new springs
in the ordeal of the crisis. And the big lesson is that tomorrow, we must, once again, in all our
countries, reckon with the citizens.
Citizen is not a separate category, it is each one of us. The company head, the shareholder, the
employee, the trade unionist, the non-profit activist, the policy maker – they are all citizens who have
responsibilities towards others, towards their country, towards future generations, towards the planet.
The world of tomorrow must reckon with citizens, with the demands of morality, the demands of
responsibility, the demands of dignity for citizens. What I suggest to you, Ladies and Gentlemen, is
not to see this not as yet another problem, but as part of the solution ; to see the emergence of this new
world citizen not as an additional difficulty, but as something healthy, something good, something
virtuous. And do you know why ? Because, perhaps, the emergence of this more lucid, more realistic,
more aware, more demanding citizen, will allow us to feel happier with what we are, and, more
important, happier with what we accomplish.
Ah, one last thing : I want everyone to understand something, which is that in this world – don’t worry,
I’m not starting all over again – the differences between the English-speaking nations and continental
Europeans are disappearing completely. This is something that has struck me very strongly, the fact
that faced with a very serious problem, we found ourselves on an equal footing. That’s it.
I would also ask you, Professor Schwab, not to forget the Global Fund and the Millennium Goals and
to act in such a way that we – the States – respect our appointments, but also that the generous donors
do the same – I know that Melinda Gates will be here tomorrow. But also that we do not forget, here
in Davos, that there is a human purpose to all this – we are not technicians who think solely about the
creation of wealth ; it is perfectly legitimate to raise the question of the distribution of wealth. Do not
let yourself be imprisoned in a caricature. The opponents of the market economy would be only too
happy – and it would be much too serious if this were to happen.
Thank you, I’m really going now.