Transcript: Treasury Secretary O'Neill Briefing After G-7 Ministerial in Rome

SECRETARY O'NEILL: I thought I'd give you just a few comments and then take your questions directly. You have a statement to work with, but I would add these additional comments. We had an opportunity to exchange views about the state of the economy, and I shared with the other ministers and staff the views I expressed the other day before leaving the United States. Specifically, I indicated to them our view that the U.S. economy will return to a real rate of growth of over two percent in the fourth quarter of this year and our expectation is that next year we will grow at a rate of something over three percent. I would say they were obviously not surprised because they follow these things very closely, but they expressed their own hope that this expectation would be fulfilled because, as we've all noted, we are very much tied together these days and what our individual economies do is important in its own right, but it is also important to the broader prospects of world real-growth. So I think we had a good discussion and a sharing of views as we went around the table, and individually talked about our own economy's expectations for the broader world economy.

At lunch we talked about the multilateral development banks at some length. The staff had prepared a paper that identified areas for improvement and a week or so ago in Detroit I had given a speech to try to capture in one place the ideas that we have in the U.S. for how we would like to see the international financial institutions work going forward. I would say there was a great degree of agreement, the presence of the multilateral development banks, they were with us for this discussion, and I think among all of us there was agreement on the general direction we all want to go. I think we are for sure absolutely together on the wish to accelerate the improvement and the standard of living in the world, and there was a notable agreement about the importance of education and the emphasis that we should all be giving to education both within our own countries and more broadly through the international financial institutions and that was a welcome expression of feelings from the ministers and from the presidents of the multilateral development banks. I am sure President Bush will welcome it when he is here in a few days because education has been so important to him in the context of the U.S. and I am sure he will be pleased to see this level of agreement, which I am sure will carry forward with the leaders he is going to meet with.

One area that came out of our discussion today, was what I would call a spontaneous development out of our conversation. There was an agreement to direct the staff to prepare some work for our consideration to identify structural reforms that might be undertaken in individual economies that would serve to raise the potential sustainable rate of real growth in the world economy, that is to say if in a particular geographic area there is today an agreement among economies that the sustainable real growth rate is two percent or three percent, to look at those impediments that keep the rate from being even higher than it is at the moment. We particularly noted the value of looking at how much we could raise world potential growth rates by having a world completely free of trade and tariff barriers and a world that was able to make adjustments quickly, without impacting on individuals but providing for a higher rate of real growth. I think this was a very good and useful development coming out of our meetings.

We had the opportunity, I should say I had the opportunity along with Under Secretary Taylor and the Chief of Staff to meet on a bilateral basis with the Italian Finance Minister, yesterday, and, today, with the Russian Finance Minister, with the Canadian Finance Minister, with the German Finance Minister and with the Japanese Finance Minister. And as I've reported to you after these meetings before, I found these individual meetings very useful. They provide an opportunity to discuss issues of mutual interest and more at length than it is possible to do in broader meetings and, as an example of that, I had an opportunity in the meeting with Minister Kudrin from Russia to talk with him about the prospect of our coming trip to Moscow and out into the region, and to discuss the things we are hoping to see and to hear more directly from him about the actions that are taking place in the Duma in a good faith effort to come in to conformity with the world's standards for financial activities and the rest. I found these meetings particularly useful, and in each one of them I made a point of raising the issue of the steel industry.

Some of you may not know, but a few weeks ago President Bush indicated that he was looking at the U.S. steel industry from a point of view of trade flows and impacts on the U.S. steel industry. But at the same time he took this initial action on U.S. trade laws, he made a directive to myself, to the Secretary of Commerce, Mr. Evans, and to the U.S. Trade Representative, Mr. Zoellick, instructing us to begin discussions with country leaders and steel company leaders around the world, to see if it was possible to formulate an agreed intervention that would improve the prospects for the world's steel industry going forward to avoid the very real prospect of a country's taking some action to protect their national industry, which might be negative in terms of its impact on consumers. And so in these bilaterals I took advantage of the opportunity to raise this issue and to get the discussion started about joint actions that perhaps we could take to follow up on President Bush's notion that we have been struggling with the problem of the steel industry almost universally around the world for the better part of 40 years. Perhaps by discussing the issues and coming into agreement on the facts, we can fashion a solution that would be better than the possibility of protective action. Now questions.

QUESTION: Mr. Secretary, what did you take away from your meeting with the officials from Japan, and did you get a timetable for their reform plans as you indicated you would like to see on Thursday?

SECRETARY O'NEILL: I got a very clear reassurance from Minister Shiokawa of the intent of Mr. Koizumi to follow-up on the reforms that he expressed to the people in his campaign for office. In an indication that we are likely to see action on some of these things fairly soon, I think if my memory serves me correctly, he used the word "autumn," and for me "autumn" starts in September. So maybe you should ask him yourself if autumn means September.

Q: Mr. Secretary, in your pre G-7 press conference, you said that Europe and Japan also need to play locomotive roles in the global economy. Did you get any indication from your G-7 partners that the authorities in those regions are prepared to take the policy action to sustain such a role?

SECRETARY O'NEILL: Well, I tell you, I got several things from this conversation and from what I have said before we left Washington. For sure there is no doubt among these leaders. Every single one of them has the sense of devotion to the idea of their country or their region growing as fast as it is possible to do on a sustainable basis. In other words there is no one in this meeting who said we are very satisfied with the rate of growth that we have -- including us. In other words, I think that there is not a single individual who would say that they are perfectly satisfied and they can't do any better, and maybe that is not a surprise. But I think it is a welcome thing that no one is complacent about the rate of growth even those who are growing at three percent still, and there are a few. In fact, the Russians are growing at over five percent.

Yes, I think you need to put these things in context, but I was pleased to see this strong commitment to the idea of sustainable, real growth at higher levels to benefit the people of the world. Now, I am learning things about the nuances of words. When I used the word "locomotive," I was thinking of the train system in the U.S. where it is not unusual to have three engines hooked to the front of a lot of cars. I discovered, though, that some of the people who listened to the words assumed when you say "locomotive" there is only one. I went out of my way to say no that is not my idea of how to use these terms and let me be more careful here in how I use the words.

I think everywhere where there are political leaders responsible for a monetary fiscal policy in setting the conditions for real growth, the leaders need to be dedicated to taking the actions that will give them the greatest likelihood of sustainable growth and then I said what I believe and you know I have been saying this for some time. I really do think more and more that we are linked together, and that there is no such thing as a growth situation that is bad for some country or some countries when it occurs someplace else -- which is another way of saying, we should all have the ambition to grow at the limits of a real growth rate, and doing so will be reinforcing and constructive for everyone of us.

Q: Mr. Secretary, the French Finance Minister, Mr. Fabius was quoted as allegedly blaming the U.S. in part for slower world growth, and I was just wondering whether there is any real division there or any real difference of opinion. Was there a meeting of the minds between you and Mr. Fabius?

SECRETARY O'NEILL: I am getting more amused at things that I read. I don't know if you noticed, but when we were standing out here for pictures when we took our break, I said to him -- and to several others whom you didn't name -- we should all throw our arms around each other so that people will understand that we don't have any differences of opinion, and we are not here to throw rocks at each other. And he only laughed.

One of the things that I must say that I am coming to like about these meetings a lot is the seriousness, the purpose of the people who are here. They have done their homework. They care a lot about their own countries and about what they are doing, and I think from time to time we may have some differences of opinion, but in every case so far, where it looked like we had a difference of opinion, when we spent enough time to talk to each other to be very careful in defining terms the differences disappeared. Over the last three or four months we have had several areas where there have been long-range conversations about whether we agree about policy or not. When we get close together, somehow the differences disappear, and we find room for a spirited agreement.

Q: Were there any doubts raised by the people you met with today about your optimism about the U.S. economy? Also Mr. Fabius expressed concern about the domestic savings rate, for example, in the U.S. Were there concerns about the future?

SECRETARY O'NEILL: What I saw in the paper this morning was like from a different planet. And no one raised those issues.

Q: Were there any concerns that the economy wasn't taking the medicine quickly enough from the Fed and the promise of tax cuts?

SECRETARY O'NEILL: No, I didn't hear any of that, at all. As I said to you, I think there is a great desire for all of us, including those of us in the U.S., that these forecast growth rates come true. I think all of the Ministers here are very hopeful all those rates come true because they see the relevance and importance for their own situation.

Q: Mr. Secretary, I have a couple of questions. The first one is, did the Finance Ministers talk about stock market issues which are weakening recently? The second question is whether the Japanese monetary policy came up or not in the bilateral meeting with Mr. Shiokawa? And the third question is related...

SECRETARY O'NEILL: No and no, so far.

Q: The third question is related to the issues of bad loans. Before this meeting Mr. Shiokawa suggested that he doesn't rule out the possibility of re-capitalization to Japanese banks. Did he mention that in the meeting?

SECRETARY O'NEILL: Well, the first two are no and no, and we talked a little bit, not in the bilateral but in the broader meeting, about capital structure, but it was not in the context of the Japanese economy. It was in the context of the international financial institutions. So I think maybe "no" to all three of your questions.

Q: Was there any discussion about currency and the strong value of the U.S. dollar?

SECRETARY O'NEILL: No. There was no conversation about currency. You know I don't even have to wear a sign anymore saying "we don't talk about that".

Q: You said that if you spend enough time together you'd get to a spirit of agreement. Spending time together today, did you get to that spirit of agreement concerning the Tobin Tax that Minister Reynders might have evoked?

SECRETARY O'NEILL: It's interesting. We had a conversation about that issue, but we didn't seek to have a resolution of it. We just noted that in passing that issue, and some other pieces of these papers, led us to a resolution that, I think, will serve us very well going forward. We're going to adopt a process of shorter papers, prepared under the direction of the Ministers, to be owned by the Ministers, if you will, rather than to have a series of staff papers that are represented by the Ministers, rather than owned by the Ministers, if you take my point. The discussion of the papers today was quite good and constructive, in terms of thinking through for ourselves how we wish to work together going forward.

Q: The last time you and the ministers met in Sicily, you came out of it sounding relatively optimistic. But since that time we've seen the growth forecast in Europe diminish from about three percent to about two percent and, perhaps, below. We've seen Japan slip more toward a recession, and also the anticipated take-off in the United States has not materialized and, in fact, the figures released on Friday suggest that it's still a fairly gloomy picture. How do you explain this particular situation? Why do you think this synchronized downturn seems to be getting worse and, in all candor, do you think that there really is a chance to pull out of it this year? Or will we be looking toward next year to see signs of a recovery?

SECRETARY O'NEILL: Your question and the phrasing of the question is very important. Yesterday I had about an hour-and-a-half of down time, so I spent some time watching television. And I tell you, I am so glad I don't have to do it every day. Because the attitude of what's there is so shrill, and I think it's partly because there's such a huge demand for news that even when there's no news -- there must be news.

If you look at the U.S. economy, specifically, and you look at it through the first six months of this year, the final sales of automobiles and light trucks is running at the second highest rate ever -- only second to last year. In fact, in the month of June, the U.S. rate of final sales -- this is not production, but final sales -- for cars and light trucks were at a 17 million unit annual rate. Housing starts are running at a remarkable rate. I might say that maybe this is the half-full-half-empty syndrome. But you didn't say that the announced unemployment rate yesterday at 4.5 percent was, in fact, lower than most months since 1972. I think there is some perspective required here on where we are.

The reason I give you back such a sharp answer is that because I think economics is substantially influenced by confidence and expectations. When I see the deluge of what's coming at average citizens around the world every day -- this torrent of television and other forms of communication, I must say that I do have some concern that it's possible to talk people into a sour mood. Even when it's not appropriate to be in a sour mood. Would it be better if we had 3 percent real growth? Or 4 percent real growth in the world than the 2 percent or something that we're going to have this year? I stipulate that -- absolutely. Higher is always better, as long as there is no inflation. Without any other reservation, higher is better. But this is not terrible, and I think that the corrections that are taking place in the U.S. economy are putting us on a footing that will return us to higher rates of real growth fairly soon. Don't ask me to tell you what day. But, fairly soon. I must say I am comforted by the representation of Prime Minister Koizumi and by his Finance Minister Shiokawa. They are people full of confidence and knowledge and, I believe, determination to act. In the conversations with the Europeans, again, I say that these are talented people who understand as well as anyone what the instruments of economic growth are, and I think that they are determined in their own way to do what they can to improve the prospects of higher, real growth, as soon as we can.

Now I would say just one more thing to you. If officials had 100 percent capability of turning hope into reality, we'd be operating at 5 percent real growth around the world today. And that's a way of being humble, if you will, about the fact that the world economy is made up of so many different parts and so many hundreds of millions of people today, that any world leader who tells you that they know what to do and what day to do it and what's going to translate exactly into two percentage points of real additional growth, I'd say you'd found someone who doesn't understand what they're talking about.