7:24 P.M. CET
MR. CARNEY: Good evening, ladies and gentlemen. Thanks for your patience. This is an off-camera, not-for-broadcast, but on-the-record briefing -- in other words, you can quote us, those of us who are up here, but not for broadcast, either radio or television.
I have with me tonight Ben Rhodes again, Deputy National Security Advisor for Strategic Communications; and then Lael Brainard, who's the Under Secretary of the Treasury for International Affairs.
And, Ben, if you want to top it off, and we'll take your questions.
MR. RHODES: Sure, thanks. We'll move pretty quickly here to questions. Again, just to recap the day, the President, after his bilateral meetings this morning, participated in the first several sessions of the G20, where I think leaders were focused intently on advancing the broader G20 agenda that's aimed at achieving balanced and sustainable growth, while also having consultations about the pressing challenges here in the eurozone, which are, of course, of great interest to the U.S. economy, to the European economy, and to the global economy as a whole.
I think the sense was that leaders were very committed to dealing with this challenge with a sense of urgency. After having expressed support for the European plan that was laid out last week to address and stabilize the situation in the eurozone, they continued to discuss how that plan is going to be implemented -- and Lael can address some of that in your questions. Tomorrow those consultations will continue at the G20 sessions in the morning. And then the President will have a bilateral meeting with the President of Argentina.
Just one slight addendum to the Libya event in the afternoon, because there was a question earlier about the attendance of senior U.S. military -- Admiral Stavridis, the Supreme Allied Commander of Europe, will be in attendance, obviously as the senior U.S. official, senior military official of NATO; and Admiral Locklear, who is our Commander, Naples, in terms of executing the Libyan operation, will also be there. So, again, the senior U.S. military leadership that led our portion of the coalition effort in Libya will be represented at that event.
Then the two Presidents will have the joint interview that we discussed earlier this morning to conclude the President's time here.
But with that, Lael and I are happy to take your questions.
Q Dr. Brainard, your colleague, Mike Froman, said that the exposure of -- the direct exposure of U.S. banks to the eurozone crisis was modest and there were tools in place to deal with any spillover from indirect exposure. Can you talk about what those tools are, please?
UNDER SECRETARY BRAINARD: I think as we said previously -- I think the Chairman of the Fed has said this previously as well on the record -- that the direct exposure of U.S. banks and financial institutions to the periphery -- to the program countries in Europe is modest. And the indirect effects -- and this is now speaking for ourselves, obviously through trade, through confidence, through general growth in the global economy are, of course, much more sizeable. And that's why all the leaders, President Obama chief among them, along with his colleagues at the G20, are very focused on making sure that we stand behind European leaders as they address and solve their crisis, and also on ensuring there's growth.
In terms of an insurance policy, the strongest, best insurance policy for the United States is the President's jobs act proposals. He's been actively working those. As you know, our recovery is still fragile and vulnerable to events beyond our shores. And that's why it's so important for us to make sure that we have in place the payroll tax cut, the infrastructure financing, the mechanisms that he's proposed to get people back on the job.
In terms of the broader euro area and its effects on the international economy, the reason that we're here today is precisely because this is the right group of countries at the leaders' level who can come together and really restore confidence and get the world back on growth track.
Q Dr. Brainard, I'm sorry, specifically talking about counter-party risk from European banks to U.S. banks -- European banks getting into severe problems. What tools does the U.S. have to address that sort of indirect risk?
UNDER SECRETARY BRAINARD: The United States banking system is a lot better capitalized than it was going into the crisis. If you look at the capital buffers in the U.S. banks, their leverage ratios have come down very considerably as a result of the stress tests in 2009 and the new guidelines that are being put in place. And their capital buffers have doubled relative to where they were in the crisis. And it's precisely to guard against shocks from financial markets that we led this effort to ensure that our banks would be carrying much thicker capital cushions, as they do today.
Q So that's what the tool -- you're relying on the capital, the bank capital?
UNDER SECRETARY BRAINARD: We're relying on a whole host of changes in our financial system that have been introduced in the past several years that are increasing transparency about counter-parties, confidence in counter-parties, again, reducing leverage. The size of the shadow banking system has shrunk very considerably since the time of the crisis. And again, the very thick capital cushions that our banks are being asked to carry and asked to continue building are a very significant insurance policy for our banks.
Q You've called for an enhanced role for the European Central Bank to fight the eurozone crisis. What is it you need to do now as this situation in Greece and Italy escalates? And can you give us any specifics on what President Obama sought for the ECB when he met with Chancellor Merkel and some other leaders today?
UNDER SECRETARY BRAINARD: Well, in the President’s meetings with Chancellor Merkel, with President Sarkozy, in the broader leaders’ meeting at the G20 on growth, he really focused on a set of interlinking pieces that the Europeans are putting in place that together put them in a much stronger position to decisively address the financial volatility that they’ve been facing.
The ECB of course has an important role to play. It is a very significant Pan-Euro-area institution, and it is playing a constructive and important role. And of course the Fed played a vital and critical role as a partner as we wrestled with the financial crisis here two years ago. But there are also -- the Commission is playing an important role, and the leaders of the euro area. So it is the full set of leaders and Pan-European institutions that together hold the key to the resolution of this crisis.
And that is what the President has been emphasizing, not just here, but as you know, he’s had a number of very important phone calls and meetings with European leaders over the past weeks to try to bring everybody together to articulate the comprehensive plan that they put together on October 26th and now to accelerate and elaborate their implementation of that comprehensive plan.
Q Thank you. Can you please give us a readout of Secretary Geithner’s meeting with Wang Qishan today? And also, does the IMF need more resources or should it host an SPV, a special purpose vehicle, to help the euro area?
UNDER SECRETARY BRAINARD: Secretary Geithner had a very good meeting with Vice Premier Wang. As you know, they together run the economic track of the Strategic and Economic Dialogue and have forged a very strong relationship over the years.
They met today and talked about a host of issues, common challenges. They talked together about how they view the financial volatility that the euro area and the global economy are facing. They also talked more broadly about the role that China can play. And I will say that China is playing a quite constructive role at these meetings. You’ll recall that in Pittsburgh, President Obama led the initiative to broaden out and make sure that the G20 became the premiere forum for steering the global economy. I think that vision of his has been validated here. China is recognizing, I think in a very constructive way, the important role that its economy can play as it provides greater demand for the international economy at a time when demand in the advanced economies is weakened. China, by shifting to domestic consumption, can play a more constructive role and help to sustain growth.
And you’ll see some language I think in the communiqué action plan that come out of this meeting that really shows a recognition that there is more that China is willing on its own initiative to do to help shift towards domestic consumption-led growth away from an export model that’s really outdated and ill-suited for today’s conditions.
Q And the IMF?
UNDER SECRETARY BRAINARD: There are a number of discussions underway to talk about how the international community can come together in support of the Europeans as they move forward to elaborate and to accelerate implementation of their comprehensive plan.
Of course, the core of that needs to be European commitment and European resources, and that is going to be the core of any successful effort. But the international community also has a role to play in coming behind Europe and also in making sure that, in today’s more volatile financial markets, that members of the IMF have the mechanisms they need to shield themselves from contagion.
There are a number of constructive ideas that are on the table, and so we are hopeful that the international community and the euro area can both come together and take some meaningful actions to accelerate implementation of the comprehensive plan and decisively address the volatility that has been in the financial markets.
Q SPV, more resources? That was the question.
UNDER SECRETARY BRAINARD: There are a number of ideas that are being discussed. I think the situation is fluid; I don’t know where it will end up. But there are a number of, we think, constructive and creative ideas on the table.
Q Along those lines, if there are countries like the UK and Russia and Brazil and others that are offering more money to the IMF, would the U.S. consider going along and offering more of its own?
UNDER SECRETARY BRAINARD: Our position has been that for Europe’s comprehensive plan to succeed, Europe really has to be at the center of that. It has to mobilize the very substantial resources it has. It has to show the will, the political will that all the leaders have articulated. And that is, at the end of the day, going to be the crux of the success of Europe’s comprehensive plan.
That said, there’s a role for the international community, and the IMF, as you know, is substantially better resourced today than it was back in 2009 when we supported an expansion of the resources of the IMF. Today it has about four times greater resources than what was available to it when that action was taken in 2009, so we think that is a very important buffer for the international community.
And of course we will be part of these discussions about how to make sure that Europe can find ways to fully mobilize its resources and that the international community is coming behind Europe.
MR. RHODES: And I just had one thing that -- building on some of the things we’ve said today, which is that what you have is a European plan that was obviously agreed to last week, and they’re obviously going to drive the process of implementation, drive the resourcing and implementation of that plan.
The G20 provides a forum for the international community and the leaders who are here in Cannes to discuss ways in which they can express support for those European efforts, drawing on, in part, some of the lessons and the tools that were developed in the financial crisis in 2008-2009 when very aggressive action was taken by the United States and others to deal with a financial crisis. And it was precisely in that timeframe that, again, the IMF did see a significant increase in its resourcing and, again, has been able to be a tool in the context of the eurozone as well as many other challenges around the world.
Q For Dr. Brainard. What was -- what is your reaction to the events that occurred in Athens today with the withdrawal of the referendum? And can you just sort of explain to us -- all this went down in a very dramatic fashion during the course of these meetings today. Give us a sense of sort of how that was received on the inside. How did -- were people watching this on TV? And what was the reaction when the Prime Minister was speaking?
UNDER SECRETARY BRAINARD: I'm going to refrain from commenting on the specific political developments in Greece. But what I will say is, for any financial stabilization program to succeed, to convince the markets to come back and finance a sovereign, there has got to be political commitment on the part of the sovereign. That is the first test of the success of a financial stabilization program. And that is the message that European leaders gave to the leader of Greece.
And it is, I think, helpful that the G20 is meeting together at this time, because it really gives the leaders around this table -- which, again, is the right set of countries to be grappling with growth challenges, financial volatility challenges in the global economy -- gives them an opportunity to help provide that stability and a stronger base for growth going forward, so that the Europeans can succeed in their efforts on the basis of strong reform commitments in Greece and in other vulnerable sovereigns, and on the basis of continued political commitment.
Q But the initial reaction was not positive that this referendum has been at least postponed? It seemed to be a desired result, right?
MR. RHODES: Yes. I mean, again, what I'd say is, as we said earlier today, there's a plan that was agreed to last week that addresses the Greek situation, addresses it in a comprehensive context that includes other elements -- whether that involves recapitalization; it also involves establishing a sufficient firewall to deal with contagion. We believe that that's a good basis for going forward. We believe that there's a very clear road map going forward as relates to Greece that was established as a part of that plan. And again, I think the European leaders made very clear the fact that the decisions that the Greeks undertake are going to affect, perhaps, the sequencing of the implementation of that plan.
And so what we want to see is political will on behalf of all the leaders who made commitments last week, to include, of course, Greece's political leadership, who have had to make some very tough decisions that are necessary to put their economy on a firmer footing, as well as a broader spectrum of political leaders here in Cannes and here in Europe who also have to take some very tough political decisions.
So, again, our view is that there's a plan of action. We want to see that plan of action go forward. It's going to take political will to move that plan of action forward. But again, what the G20 does is it serves as a catalyst for leaders to come forward and show that political will.
Q I assume that the referendum was not part of that plan for action and, therefore, it being out of the picture is a positive.
MR. RHODES: It wasn't. I mean, obviously it wasn't. I mean, you heard the European -- you heard Chancellor Merkel and President Sarkozy say very clearly yesterday that the referendum was something that was obviously put forward after that agreement was reached; that they would not move forward with the provision, the resources associated with the agreement last week until after the referendum took place.
So, again, I think what we want to see is not a climate of uncertainty, but a climate of political commitment to move forward and to implement in a bold and decisive fashion the steps that were agreed to.
Q Dr. Brainard, you said earlier this week that the Chinese might be relieved that the Greek debt crisis would take the focus off the issue of their currency valuation. Did Secretary Geithner bring up that issue today?
UNDER SECRETARY BRAINARD: I'm pretty sure I never said that. (Laughter.) But I will say that currency has been part of these conversations. I think you'll see some language in the action plan on that. I think China is recognizing the role of greater exchange rate flexibility in helping to shift to domestic demand. It is one of the most powerful instruments, perhaps the most powerful instrument, that China has at its disposal in the near term to both counter inflationary pressures, which is a very high priority for them, and also to shift to domestic, demand-led growth.
So it's very much been part of the discussions here. It will be in the action plan, as part of a broader set of things that China and others are going to do to help shift their growth models to domestic demand. And there is generally discussion about avoiding persistent exchange rate misalignments. So I think you'll see a shift there that's a constructive shift.
Q Just to clarify -- you've talked about China's constructive role in sort of the broader G20 agenda. A moment ago, did you also say they're playing a constructive role specifically as far as the eurozone crisis?
UNDER SECRETARY BRAINARD: What I said earlier is that when the Secretary met with the Vice Premier today, they talked about a host of issues that we both have a big stake in, among which European efforts to move forward on this comprehensive plan and deal decisively with the challenges they face -- they did so in the context of a broader set of issues that are also of common concern. And in terms of China's role here at the G20, one of the most important contributions they can make at this time, when everyone is focused on growth -- everyone at that table is focused on securing stronger growth -- one of the most important contributions China can make is to shift its own growth path, which will help contribute at a time when demand in the advanced economies is weak.
Q I'd like to know if you can tell us what was the single most important progress that you think was made today, either for growth or for the details that might have come out for European plan, or for the Tobin tax. And also on the side, is there a reaction of the U.S. for the European Central Bank that has capped for the first time in a while its interest rates?
UNDER SECRETARY BRAINARD: Let's see, let me take it backwards. We're pretty careful not to talk too much about decisions of central bankers and in our own economy, so probably not good of us to do so with respect to other central banks. But on the issue of what is the single-most important shift that we see, you really do see, I think, a coming together around growth. You will see it in the action plan. You will see it in the communiqué. You will see that the world clearly -- the G20 countries clearly see as their number-one priority for action together is to strengthen the recovery.
And so you will see that countries are talking. For those who have some policy space about letting automatic stabilizers do their work, about using discretionary measures, you will see good language in there, again, about how those surplus economies really need to take concrete actions to shift to more domestic demand-led growth, including by using exchange rates, but also by using domestic measures. And of course for the euro area, which is experiencing financial volatility, the path to growth is really by dealing decisively with the financial challenges in their sovereign debt markets and in their banking systems.
MR. RHODES: And just to add one thing -- I think what we see is these summits are both an opportunity to advance an agenda that we've been working very hard on over a period of time -- certainly the efforts to highlight the necessity of growth in the global economy, to include efforts by emerging economies to increase demand, are a part of that ongoing effort. But they're also a catalyst for action as relates to current crises. And I think one of the most important functions of the G20 here is it's been able to focus that effort at the highest political levels of the world's biggest economies. It helped focus efforts leading into the G20, where European leaders came together in advance of Cannes to lay out a plan of action.
And I think today what we see is leaders coming together with a sense of a common purpose to address what ways Europe can, again, solidify its implementation of that plan and what ways the international community can express support for their efforts going forward. Obviously those discussions are going to continue into tomorrow, but, again, we believe that this demonstrates the utility of the G20 serving as the focal point for this type of international economic coordination and the ability to advance a broad agenda over time and the ability to deal with very specific crises as they emerge.
Q Dr. Brainard, can you clarify just a couple of small things? I just want to clarify that, although it was in the context of a comprehensive package, Obama did raise the role of the ECB in the eurozone crisis, and secondly, that the U.S. would be opposed -- and is opposed -- to a new SDR allocation for the IMF.
UNDER SECRETARY BRAINARD: On the first issue, I think I spoke earlier about how the President has consistently been engaged with European leaders on a comprehensive plan that necessarily engages all of the critical institutions in the euro area. And the ECB is a critical pan-euro area institution -- of course it is part of that, but it's part of a broader set of actors, and is part of the set of actions that together are going to stabilize Europe and put it onto a sustainable growth path. So it's really in that context.
More broadly, on the question of actions that the international community can take together, again let me just say the conversations there were quite fluid. And so what we'll do is give you a better sense of that once those conversations are progressed.
Q Just to clarify, today the President mentioned the thing that he's been talking about for months and months in terms of the ECB's role in the eurozone crisis.
MR. RHODES: I mean, I wouldn't overstate it as in relation to other elements. Again, as Lael said, in these meetings he -- it was one of many different tools that were discussed as potential levers that could drive implementation of the European plan. But it was in a very broad context, and I wouldn't elevate it as against the other variety of tools that exist to policy makers.
MR. CARNEY: Let's just do two more if we could.
Q Dr. Brainard, let me also clarify on the point of the role of IMF. So is it safe to say that an option to boost IMF resources is off the table at this G20 summit, and rather leaders are talking about technical aspects of IMF, how IMF can help Europeans?
UNDER SECRETARY BRAINARD: Again, I can't give you a lot of details at the moment because the conversations are very fluid. I think the best way of characterizing it would be that Europe is talking intensively, and we are talking with Europe intensively about how better to mobilize its own resources; how better to demonstrate political will on reforms, on commitment to ensure that the largest sovereigns with sound policies will have access to financing at affordable rates to ensure that the banking system is going to have the liquidity and the capital it needs to inspire confidence in its depositors and its investors; and that Greece is on a sustainable path.
Those are the critical pieces, and Europe really is at the center of a successful plan. But of course the international community has a huge interest in Europe getting this right, and is going to want to be there -- and the U.S., no less than anybody else, and perhaps a great deal more. These are our allies; these are our friends; these are our partners. And the U.S. will be with Europe as they move forward on this through the IMF and directly as well. And the international community I think wants to make sure that Europe has its support, but also that the world economy is in a place where it’s well-resourced to deal with any shocks.
And, again, we started back in 2009 with far fewer resources in the IMF than we have today; four times more resources today, much better resource system for precisely these kinds of challenges.
MR. CARNEY: Last question.
Q Can I ask Dr. Brainard -- overall, how close are you coming to seeing some of the greater elaboration, greater detail that Obama, Mike Froman earlier today, all of you have been talking about is your goal in greater elaboration on this? And is this something that you could see happening in the timeline of these actual G20 talks, or you won’t see that happen in the next few days?
UNDER SECRETARY BRAINARD: Let me just answer a little indirectly, first, by saying that the conversations around the table, both of the large group, but also the President when he’s working with his European friends, and in small group discussions, they’re very focused on this. So everybody is of a single mind in terms of what the imperative is. And it’s just a question of trying to move forward in a way that is decisive and shows that everyone grasps the urgency of the situations.
But I would also offer that this is a process, that any kind of financial stabilization efforts are processes where additional actions are taken and markets evolve, political events evolve, and we need to -- our European friends needs to be agile and to be able to continue to evolve.
One of the reasons we stressed from the start the importance of a very well-resourced firewall with overwhelming capacity is precisely to provide that kind of insulation, so that when events -- either political or market events -- are destabilizing, that other economies in the euro area will be well protected from the contagion. And I think everybody understands that and they’re working very hard to make sure that element, that vital element of the plan, is in place and has the overwhelming capacity needed.
MR. RHODES: And just to wrap it up, I think that, again, what we’ve seen thus far and will continue tomorrow to discuss is there are a range of tools and options that are available to European leaders as they flesh out and move forward with their implementation plan. We’ve discussed a range of those tools here today. There is also, of course within the international community, through the IMF, a range of other additional tools that could support European efforts in moving forward.
And I think what we see here is a very concerted effort where you see the European sense of urgency to act and to move forward with the implementation of their program. You also see, from the U.S. side, the ability to draw from our own experiences to provide the type of technical expertise that exists within our team, as we share those lessons and as we discuss some of the tools that the Europeans are considering and the international community can bring to bear.
And I think what the discussions are doing are fleshing out, again, precisely how the Europeans project a way forward with their implementation, and precisely how the international community expresses support and provides support for those efforts given, again, the ramifications for the European economy but also for the stability of the global economy, the economic recovery back in the United States.
So I think what we see is a very serious sense of purpose here. I think you see that the summit itself has galvanized a sense of urgency. You have the President working very closely with some of his very closest partners and allies from around the world to deal with this. And tomorrow, of course, we’ll continue those discussions and look to point the way forward to the next phase of the implementation plan in Europe, and also the G20 agenda broadly, in terms of dealing with promoting balance and sustainable growth going forward.
Q Are you narrowing your focus? I mean, are you narrowing --
MR. RHODES: Yes, I think there is an effort to narrow -- to focus in on what are the tools that are going to be most effective driving the implementation of the European agreement that was reached. And I think that what the leaders are doing is that they are discussing what the range of options are for moving forward and then narrowing a focus into what is going to be the most effective way to move forward in the eurozone, even as they’re also moving forward on a much broader G20 agenda.
MR. CARNEY: Thanks, everybody. Appreciate it.
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