Good morning, I have just been given permission to speak in Hungarian.
Allow me to welcome you all,
Before I start my address, I would like to say that I’ve just come back from Shanghai, where I witnessed a moment in world history which I would like to call your attention to. If, say ten years ago, anyone had said that we would be able to attend a conference where the Chinese, the World Bank, the head of the World Trade Organization and the head of the IMF, would seek to defend free trade and multilateralism against an unspecified, important player in the world economy, if anyone had told us this ten years ago, we would have had laughed out loud. It clearly indicates the scale of changes taking place in the world that today perhaps only we Eastern and Central Europeans would find this somewhat intriguing, as China has become such an established player of the world economy that today its role as a champion of multilateralism and free trade does not surprise us at all.
I also warmly welcome the Governor of the People’s Bank of China, because next year will be the seventieth anniversary of the establishment of diplomatic relations between our two countries. This is not a world record, but it puts us among those countries which earlier than yesterday began to recognise that one day China would have world economic and world historical importance. This cooperation and friendship over the course of seventy years is a major advantage in Chinese-Hungarian relations. And please excuse my bias when I extend a special welcome to my friend Mr. Isărescu, the Governor of the National Bank of Romania, and who reminds us of the heyday of our youth back in 2000, when the central bank governor was prime minister of his country, in parallel with my premiership. Welcome back to Budapest.
Ladies and Gentlemen,
Allow me to welcome you all here to the Castle District of Buda, which is an ancient spiritual and political centre of the Hungarian nation. You can see that our ancestors did not lack shrewdness: this site on which they chose to build – which for several centuries was where the most important thoughts and decisions were conceived – has views not only to the West, but also to the East. It has a complete panoramic view, which has encouraged those working here to gather information from every direction before adopting decisions which are important for Hungary. This is of particular significance today, because if someone only looks in one direction, they will be unable to make decisions which enable them to position themselves appropriately in the currently unfolding world order. And, Ladies and Gentlemen, the Central European countries and the closely associated Balkans region have the firm commitment, plan and optimistic vision for this region – Central Europe and the Balkans – to be winners in the decade to come.
Ladies and Gentlemen,
This is the first time that the central bankers of our sixteen countries and China have held a joint conference. We have already done a great many things, but we have never met in this configuration. This is despite the fact that we have long suspected that, sooner or later, we would reach a level at which it would no longer be enough to concern ourselves solely with trade and investment issues: that the moment would come when we would also need to seek cooperation in the field of finance.
Ladies and Gentlemen,
The fact that this has happened is due in large part to the prominent, initiating and decisive role played by György Matolcsy, the Governor of the Hungarian National Bank, who has organised this conference. We are grateful to him for this.
If we look around at ourselves, Ladies and Gentlemen, we can see what a widely diverse group we are. I’m not just talking about the fact that a variety of governments operate in our sixteen countries, but also about the diversity of currencies we use for payment and in settling transactions. Here we have Estonia, Latvia, Lithuania, Slovenia and Slovakia, who are members of both the European Union and the eurozone. Here we have the Czech Republic, Poland, Romania, Bulgaria, Croatia and Hungary, who are members of the European Union, but are not in the eurozone. They have diverse positions on whether or not to become members – and if so, when. You are well aware that Hungary is one of the more cautious of these: we want to become an integral part of the European community, whilst at the same time remaining open to other regions and communities, and this approach must also form part of our decision regarding the euro. And then we also have here with us our friends from Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia. They represent an extremely rapidly developing region, but they are neither members of the European Union nor the eurozone. Here I would like to make it clear that the Central Europeans – including Hungary – are the most firmly committed to the cause of the countries of the Balkans region gaining EU membership. We would like to see a rapid and vigorous enlargement, with the lead being taken by Serbia and Montenegro, whom I believe are the closest to becoming EU members. And this diversity is brought to a peak by the fact that with us here we also have China – the currency of which will in the future also be a force to be reckoned with.
If I’ve understood the Honourable Governor’s request correctly, my task this morning is to somehow open this conference, but not from the point of view of a central banker – there are enough of those here today. So my task is to attempt to call your attention to a few things that seem to be important from a political perspective.
The first thing I would like to mention is that at the time of the financial crisis in 2008 it became clear that we were heading towards a new economic world order. Some had already made this claim earlier, but it was the 2008 financial crisis that made it clear that we were on the cusp of a new era. Ten years have passed since then, and here we are now in 2018. With due modesty, I think we may venture to say that we can now see the outlines of the world we will live in over the next ten to twenty years. Already at this point in time we can categorically predict that the unipolar world order will be replaced by a multipolar world in which new players, new cooperation schemes and new values will emerge and gain ground.
The second thing I would like to draw your attention to is that both Hungarian and other EU politicians think that globalisation will continue, but its internal balance of power will shift: ever more power centres will rise, cutting increasingly large pieces for themselves from the world economic pie. First among these rising new centres is China. I say to the Honourable Governor that if he reads Western European analyses on China, he will frequently see claims that the country’s success is merely temporary. It is difficult to determine how much of this is sober analysis and how much is wishful thinking, but I believe that the past ten years have proved that the rise of the Chinese economy is not a temporary phenomenon. China will be a fixed star in the period ahead, and will be a major player in the world economy for a very long time. This is how we, too, should perceive China – and this is how we should approach it in the future. Among the shifts within globalisation’s internal balance of power I must mention the fact that in Europe, too, a new centre has emerged: Central Europe. God willing, it will be joined by the Balkans region, meaning Central Europe and the Balkans together: in other words, us. In Western Europe there is a consensus that over the next five to ten years the Central European region will be the growth engine of the European economy. We will be the economically fastest growing group of countries in Europe. Our advantages are not cyclical, but structural. These countries are innovative, have low taxation, and their workers have excellent abilities and qualifications. We are an important part of the European economic engine. This is particularly true of Hungary, and we feel that we have reason to look forward to the coming years with confidence. I would also like to draw your attention to the fact that, in addition to historical relations and geographical relations, economic relations will also clearly come into being between the two rising power centres: China and Central Europe. The two regions will be increasingly connected to each other. The Chinese declared as much when they announced that they would like to create a single economic area through the “One Belt, One Road” programme. To our ears the term may sound strange, but we are talking here about building Eurasia. Whenever we talk about the future of Europe, there are three concepts on the table: Eurasian, Euromerican and Eurabian. Each of these has a lot of truth in it, but undoubtedly it is the Eurasian concept which is the most novel and most attractive from an economic point of view. This involves no less than China and Central Europe forming part of a single contiguous geographical region. By rail it may be possible to travel and transport any goods between China and Central Europe in two weeks. If we are able to build a rapid rail link from the Greek ports to Europe, this journey will be even faster. What I mean by all this is that in the future we should consider Eurasia not only as a clearly existing geographical fact, but also as an economic area.
Ladies and Gentlemen,
Naturally one may argue that the countries of the European and Asian parts of Eurasia stand on different ideological foundations. If I look back on the past ten years, however, I have to say that this is not important. The western half of Europe is learning more slowly than its Central European half, but eventually everyone will realise that we must adopt an approach to China that is free from ideology. We must accept that we are different, we organise our lives differently and we lead our countries in different ways. The task is not to judge – we should leave that to the pen-pushers. The job of decision-makers is to seek the common interests which we can find in a joint system of relations.
Ladies and Gentlemen,
There is a reason why in the new era one can see relations between China and Central Europe as a success story. The Honourable Governor was kind enough to mention that our trade volume is close to 70 billion dollars, and its rate of growth is staggering, standing at an average of 10 per cent; and – if I’ve understood the data correctly – trade between China and Hungary grew by 18 per cent in the first three quarters.
Ladies and Gentlemen,
I would also like to draw your attention to the fact that, in this new world order, a prominent role will be played by knowledge, talent and creativity. Everyone has two possibilities: the first is to produce knowledge; the other is to buy knowledge. Among regions there is increasingly fierce competition for outstanding specialists. This “brain drain” will create winners and losers. The Central European countries have never been famous for seeking to attract highly qualified workers from elsewhere. Throughout its entire history, every Central European country has believed that its independence and national sovereignty have cultural and intellectual foundations, and a country which is unable to produce the knowledge needed to be competitive in the modern world does not deserve to exist as a nation. In my view, this conviction is shared by the countries of Central Europe; and so we want to produce knowledge rather than buy it. And everything is in place for us to produce this knowledge: Central Europe has highly qualified, intelligent young people. And – without wishing to offend any of my contemporaries – if I compare my generation with the young generations coming after us who have now entered adulthood, they are clearly better qualified and more competitive than we were, and they will become more competitive than we are. We have no shortage of intelligent and highly qualified young people, we have creative enterprises, and we also have political systems which support research and development. In Hungary, for instance, the goal is for spending on R+D to reach 1.8 per cent of GDP by 2020: approximately 1,000 billion forints. By Hungarian standards this is an enormous sum.
Ladies and Gentlemen,
I would also like to draw your attention to a possibility. We do not know whether it will happen, but it seems increasingly likely that we will need to prepare ourselves for the dollar losing its monopoly in world trade. Today it is no longer alone on the scene. It seems that the world will be more diverse than it is today not only in a political dimension, but also in a financial one. In the future the importance and strength of the new trade centres will not necessarily be expressed in dollars. The yuan is an investment and trade vehicle which we Hungarians, too, must take account of. It is no accident that Hungary has already issued yuan-denominated government bonds, and will do so in the future – although we primarily want to finance our public debt from domestic Hungarian savings. But when we do issue bonds abroad, we will do so in the direction of the East, and we shall work on creating the possibility for the yuan to be the currency in which bilateral trade is settled. This is dramatic, and we are witnessing enormous changes. It is well worth looking at this as not only a threat, but also an opportunity – indeed more as an opportunity than a threat.
I would also like to say a few words, Ladies and Gentlemen, about how I think that the role of central banks will change in the new world order. Of course it is extremely dangerous for prime ministers to talk about this, because in the West today the doctrine is that prime ministers are not allowed to say anything about central banks. On the other hand, one can generally say that if central banks say something about governments, the latter must immediately take notice. It is extremely dangerous for a prime minister to give an opinion on central banks. Yet at a conference like this we can perhaps grant ourselves this luxury. All the more so because I would like to agree with the Governor of the Hungarian National Bank, who stressed that, in the present era, cooperation between national banks and governments is of the utmost importance. The task of central banks is to provide financial stability, while the task of politics is to provide political stability. We must not pursue separate paths: if the financial system and the political system are both stable, we can defend ourselves against the crises which repeatedly emerge in the world economy. And if there is cooperation, and we both achieve stability in our respective fields, we shall not experience a crash of the kind seen in 2008.
Ladies and Gentlemen,
I also believe that national banks could play a more active role in the development of trade and the economy. They have the means and authority to do so, but perhaps I will say a few words about this later. And lastly, I would like to call your attention to the fact that another crisis cannot be ruled out. Naturally, no one is able to speak with certainty on this – and regrettably neither can I. What I can say is that the analyses I see – partly Hungarian and partly international – mention a 70 per cent probability of another approaching crisis. They claim that we should expect an economic decline of unspecified nature: smaller than 2008, so not on that scale, but almost certain to take place. No one knows whether this will be the case, but I repeat: international analyses mention a 70 per cent probability. This is underlined by what the Honourable Governor said, and this is also true of Hungary: we must have two plans, a Plan A and a Plan B. We must not find ourselves in situation in which the Hungarian government does not have to hand a plan which has been prepared for this economic eventuality.
Ladies and Gentlemen,
Among the causes of the crisis, everyone mentions the debt burden. Indeed, a significant proportion of EU Member States are deeper in debt today than they were at the time of the 2008 crisis. It is sad that the era of cheap money is over. We are also embroiled in trade wars. The Hungarian language is more direct than the Chinese language, and in our language “trade disputes” translate into “trade wars” – but that is the nature of the Hungarian language, Honourable Governor. And there is also the issue of migration, which I believe will affect our lives more than we think. With regard to the issue of trade war, for a long time we Hungarians have taken the view that the United States is seeking to preserve its dominant role in the world economy, and is therefore attempting to transform relations in world trade. We understand this. This, for instance, is why the US is imposing customs duties on European Union products and on our most marketable sectors, thereby seeking to significantly change the trade that is the engine of the world economy. Export-oriented regions – and our Central European and Balkans region is an export-oriented region – must find the right policy in this situation. This is not easy. All I dare to say here is that this war is not our war. This is perhaps the starting point, with the aid of which we can determine how we should act in such a period of trade conflict. This war is not our war, but it has an impact on us. So we must guide our economic policy in a way which enables us to simultaneously maintain good relations with the various parties with their opposed interests, and we must be able to build good trade and economic relations with each of them separately. I believe that we – not only Hungary, but the entire region – are able to develop an economic policy which ensures that China, Germany and the United States all have an interest in making Hungary and the Central European region successful. This is not an easy operation, but it is feasible.
Ladies and Gentlemen,
Due to lack of time, I would like to say just three sentences about migration. It will transform our lives. First of all it will transform the lives of Westerners: this is beyond doubt, and this process is already under way. Western Europe will never again be what it was. The process seems to be unstoppable. It seems that in Western Europe the emergence of parallel societies is inevitable – especially in large Western European cities. We do not yet know whether Western European governments will be able to cope with the problems caused by this process, and to turn the inherent opportunities to their advantage. But we know for certain that they will have different problems from those faced by us in Central Europe, who have so far successfully defended ourselves against migration. When economic conditions balance out – because trends seem to indicate this – and if Schengen and free movement survives, then we too shall have to respond to the problems with which they are struggling today. Fortunately, this is not a challenge that is expected to emerge during this term of government: there is time before subsequent governments have to deal with it, but it is wise to prepare ourselves intellectually for this situation.
Ladies and Gentlemen,
The fact that the first migration wave has passed does not mean that we should not look at the Asian and African demographic indicators which forecast – with absolute certainty – ever more waves of migration.
Ladies and Gentlemen,
We must work on ensuring that the region remains as it is today: a safe, strong and fast-growing region which has influence – indeed substantial influence – over what the future of Europe will look like.
Ladies and Gentlemen,
In conclusion, I would like to say a few words about the possibility of cooperation between central banks and governments. If we are serious about building Eurasia, we must implement major developments, primarily infrastructure developments, because we must link China, Central Europe and the Balkans to a single network: a network on a global scale. This requires capital. In my view, central banks should take on a more active role in making recommendations to governments regarding raising the types of capital required, and they could even play a part in that process.
The second thing that I think governments should consider – and in which it would be good for them to receive assistance from central banks – is launching programmes which would enable central banks to take part in the development of businesses. Central banks – including in Hungary, though here we can see successful examples from credit programmes – should perhaps play a more active role than earlier, particularly in the development of the sectors that will shape the future and innovative enterprises.
And, Ladies and Gentlemen, if what I’ve said about knowledge is true, it is also true that it will be hard to win the future without modern education. I think that when it decided to play a part in the training of economists and engineers for the future, the central bank, the Hungarian National Bank, moved in the right direction – though it could be even bolder. So I believe that, in addition to governments, central banks could play a greater role in education than has been customary over the past thirty to forty years. I would specifically encourage central banks to consider this possibility.
And finally, Ladies and Gentlemen, what is it that national governments can offer in return? I don’t think that central bank governors will be unable to agree on this. The greatest gift that governments can offer central banks is political stability. It is necessary to create a political atmosphere free of major shocks, so that the economy can function in a predictable manner. We need the political system to be just as predictable and stable as the economic system that we expect from central banks and our financial institutions. In this respect Central Europe has no cause for complaint: Central Europe is a stable place, free from major shocks. In order to avoid diplomatic complications, I will not mention by name those Western European countries which find themselves compelled to struggle with continuous problems in forming governments, where coalitions are formed and then fall apart. And I will also not name countries where the prospect of early elections looms large. With due modesty, all I would like to say is that there is Hungary, for instance: the first free elections were held in 1990 – twenty-eight years ago – and since then not once has there been the need for early elections. This shows that in Central Europe we understand that political stability is important, and that it is also a precondition for economic success. So what we are able to promise central bankers, bank governors and managers in finance and business is that we are doing everything we can to build political systems which are at least as stable as the economic systems that we expect from financial leaders.
Ladies and Gentlemen,
Once again I would like to greet the 16+1 central bank governors’ meeting. We are grateful to the Governor of the People’s Bank of China for attending this meeting in person. I again welcome our friends from the Balkans and Central Europe. I hope that you can produce ideas and cooperation schemes which will enable us to build a truly unitary Eurasia, which in the period ahead will also operate successfully in economic terms. I wish you every success in your conference.