PM calls for reform of global economics
Friday, 25 January 2008 12:00 AM
Gordon Brown hopes the recent turmoil in global markets will convince world leaders of the need to reform.
Speaking as he arrived in Davos for the World Economic Forum, the prime minister said financial turbulence should be an opportunity to reform and strengthen the world economy.
But he warned against being overly optimistic, predicting the financial fallout triggered by the global "credit crunch" is set to continue.
He told delegates at the meeting in Switzerland: "There is also a danger, I think, with bad news still to come, of being over optimistic ... and over-emphasising the silver lining at the expense of some of the clouds."
Mr Brown said world leaders needed to "fix the world's financial system" in light of the credit crunch, which saw stock markets around the world fall by five per cent this week.
Writing for the Financial Times, Mr Brown said global financial institutions need a better early warning system to flag-up potential crises.
Other reforms set out by the prime minister included greater independence for the International Monetary Fund and for governments to use their fiscal policy to support monetary policies.
Mr Brown blamed reckless lending by banks as well as hedge funds and private equity investors for much of the recent volatility in world markets.
Accordingly he called for a re-pricing of risk to reflect its recent under-pricing, as well as a move towards greater transparency.
The prime minister also appealed to other nationals to resist protectionist measures such as tariffs on imports. Instead he asked them to embrace free trade and the idea globalisation is an opportunity not a threat.
Mr Brown has said he believes the world economy is facing its "biggest test in more than a decade".
But he added: "Turbulent conditions, throughout history, have been an opportunity for reform.
"This latest test of world financial systems presents a window in which to address fundamental issues that, if tackled properly, will improve economic management, regulation and the fight against inflation, and help us prevent similar crises in the future."
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