Speech by the Chancellor of the Exchequer, Rt Hon George Osborne MP, to the EBRD 21st Annual Board of Governors meeting
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by the Chancellor of the Exchequer.
Thank you Maria, for that kind welcome.
I am delighted to be here at the EBRD’s 21st Annual Board of Governors meeting.
I’m here alongside fellow shareholders from Mexico to Japan, from Egypt to the Netherlands - just a measure of the international community’s commitment to the EBRD.
I’m sure I speak on behalf of all the Governors when I pay tribute to the President, Thomas Mirow, and his team for what they have achieved over the last four years.
Thomas, under your leadership, the Bank has secured a 50% increase in its capital, returned to record profitability despite a challenging economic climate, and increased its lending by 80%.
Perhaps most importantly, you were one of the first people to recognise the role the Bank could play in supporting Southern and Middle Eastern Mediterranean countries in the wake of the Arab Spring.
You have managed the expansion of the Bank while maintaining its focus on its traditional region of operation.
Thomas- the international community owes you a huge debt of gratitude.
On behalf of everyone here, thank you.
The EBRD was founded in response to some of the most important events in our modern history - the fall of the Berlin Wall, and the sudden and total collapse of Communist Regimes across Eastern Europe and the Former Soviet Union.
But in many ways, the concept behind the EBRD began decades earlier.
After the ravages of World War II, the world understood that instead of leaving the countries of Europe to fend for themselves, it was in the international community’s interests to help those countries rebuild their economies.
As George Marshall put it, the world “should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace”.
The same lessons were learnt in the early 1990s, when the leaders of Europe and the World decided to extend the hand of friendship to Eastern Europe and the former soviet bloc, as they recovered from decades of Communist tyranny.
The EBRD was set up to help these countries begin the slow and difficult task of building multiparty democracy and market economies where there were none.
Since its formation 21 years ago, the EBRD has invested fifty billion euros in a region that stretches from Poland in the West, to Mongolia and Russia in the East; the Baltic in the North, and Turkey in the South.
But the value the EBRD brings goes far beyond simply the money it invests.
Not only because for every euro it invests, it leverages another through private sector investment.
It is because with that investment, the EBRD’s brings in-depth knowledge of the countries in which it works and real expertise about how to put that investment to maximum effect.
Some illustration: through the Small Business Supoport programme alone the Bank has assisted more than 1,850 companies helping them deliver average increases in turnover of 20 per cent and increases in productivity of 30 per cent.
It has supported countries to undertake banking reform; price liberalisation; privatisation and supported the creation of legal frameworks for property rights.
And in every case, it has tailored its projects to the needs of individual countries - be it rebuilding water and wastewater infrastructure in the Kyrgyz Republic, or linking isolated parts of the city of Belgrade via a major new Bridge; or Ukrainian farmers to double their storage capacity and raise profitability.
Partly due to the work of the EBRD, the prospects of many of these countries have been transformed over the last twenty years.
So why, then, do we need the EBRD today?
After all, the countries of Eastern Europe are established democracies, and since the mid-1990s, the former Communist countries have twice grown as fast as Western Europe, with trade six times greater than at the start of the transition.
That’s true, but it doesn’t mean the EBRD’s work ends.
First, there are still parts of Eastern Europe and Central Asia that need significant support.
Second, even those countries that have made the greatest progress still need assistance - more so now than a few years ago - because the financial crisis has led to significant instability, as the foreign banks that dominate Central and Eastern European banking have undergone aggressive deleveraging.
As the storms of the eurozone crisis gather, there is a risk that some of the good work of the last 20 years in building a stable financial sector and creating jobs and prosperity is unwound.
Like the UK, the region’s growth prospects are closely tied to those of the euro area, and deleveraging magnifies this effect.
But while uncertainty continues, the Bank is rightly doing what it can to limit the damage of financial deleveraging in its regions of operations.
It has already significantly increased its own lending to the region and - through the Vienna Initiative - has worked to ensure banks maintain their commitment to the region and do not cut key credit lines.
Third, the international community looked to the EBRD to support the Southern and Eastern Mediterranean countries following the Arab Spring.
A Middle East of open and democratic societies would transform the security of the world and brighten the prospects of millions of people - undoubtedly the greatest prospect for the enlargement of human freedom and dignity since the Cold War.
It is a testament to the courage of the people of Tunisia, Egypt and Libya - and now Syria - they yearn for what all people yearn for - economic development and political participation.
But there are huge challenges ahead.
All of these countries have suffered sharp reductions in growth - as uncertainty deters foreign investment and tourists, a mainstay of some economies in the region, are staying away.
Many of them will need stabilisation support from the international community - Egypt and Jordan are negotiating IMF programmes.
Others may need support this year.
Of course, there are important differences from the economies of Eastern Europe after the Cold War, but there are also similarities: over involvement of the state in the economy; too much reliance on the public sector for job creation; a weak banking sector; and lack - or in some cases only partial - integration into the opportunities provided by global economy.
We should not be blind to the challenges - success is by no means guaranteed.
But if there is one thing we have learnt from this past experience, it is that the best way to ensure transition fails and extremism flourishes is to choke off opportunity and not extend the hand of friendship to countries in difficulty.
There are huge challenges that the EBRD can help with.
The EBRD can help expand new markets and leverage private investment - and with many of the Bank’s shareholders dealing with large budget deficits of their own, the Bank will need to demonstrate it is delivering maximum value.
It can support the region to deal with youth unemployment and low participation of women in the labour force - a vital component of developing a successful economy; youth unemployment averages 25% across the region and female participation is just 26%.
And it can support to small and medium sized enterprises - the drivers of job creation; 18 million more jobs are needed in the region over the next decade and if not addressed, chronic unemployment will continue to breed instability and violence.
So the decision taken last year through the Deauville Partnership to extend the remit of the EBRD to the Southern and Eastern Mediterranean was a very important one.
But the truth is, we’ve not yet mobilised our resources.
It’s a year and a half since the people of Egypt gathered in Tahrir Square, and seven months since the Governors approved the use of Special Fund money in the Southern Eastern Mediterranean.
So far 27 members have ratified the amendment - but no less than 44 countries are required.
As an international community we need to up our game.
What would our predecessors say today?
Yes, your rhetoric cannot be faulted.
Yes, your promises are impressive.
But where is the actual commitment of resources that matches the rhetoric?
Will you be able to deliver on your promises?
Can you rise to the challenge, as you did 21 years ago, and make this a prosperous world for us all?
The answer from this meeting today must be a resounding “yes”.
Yes, we can rise to this challenge.
Yes, we can deliver on our promises.
Yes, we can go on delivering in Eastern and Central Europe and the Former Soviet Union while helping our Southern and Middle Eastern Mediterranean friends.
We can do all these things, and build a more prosperous world for all our citizens - and the EBRD will be at the heart of this.