27/11/2018 | EIFR
Yes, being ambitious for our own country is a virtuous objective! The world is becoming multipolar. What is not new is that the balance between countries is based on relative forces. In a way or another the governance of the world will be also multipolar. The question is about the conditions to be around the table and to be listen to. That is probably the major reason why for European member states the success of the European construction is crucial and even existential. None of the existing EU countries will be strong enough to be around the table and being around the table, is for us the condition to maintain our values and our specific economical model based on a balance between liberal competition and welfare, and this model is not just good for us!
What are the conditions to be strong? Can we be strong in isolation or just through bilateral relations? To be strong means to build up a real power and this power is based on economic growth with a measure which is GDP (Russia 12th 1 523, France 5th 2 766/ All 43 940Mds USD...By heads France 22d 42 420 Russia? Après 30eme).
The first condition is to leverage positively global interconnections that means a positive globalization not based on protectionism but on a fair-trade network... the question is to negotiate what is “fair” and be able to defend our own fairness which means a clear strategic vision.
The second is to reinforce our local base camp, and that is where finance is key. Why?
Growth is triggered by a clear definition of the level of the risk appetite of the country. This risk appetite should be then spread all along the production and services business lines.
Taking risk for growth means entrepreneurship and investment.
- Here a first dilemma. Our society is more and more short term driven but investments are long term.
- The second dilemma is that investors are not the entrepreneurs but investors (citizen based on their own direct savings or institutions managing indirect saving as pension funds, insurances etc). But those actors are risk adverse!
à The role or finance is to transform those dilemmas into solutions: transform the time issues guarantying liquidity (short term disposal of money or assets) and mobilizing funds for long term finance (credit, equities, bonds...).
To address this mission few conditions are needed, but the overall one is TRUST. To go from short to long term we need to be, as entrepreneurs and investors, confident on the future. The strategy of the country must be trustable and the transformation process / intermediation by the financial industry should rely on robust institutions and circuits. Sustainable finance relies on 3 balanced legs: - sustainable / profitable financial actors - sustainable intermediation providing long term investments and reinforcing corporate assets (equities vs debts) - sustainable planet through environmental finance to address this new source of systemic risk. 4 conditions:
1- To rely on robust & competitive financial actors...it needs a clear “industrial policy” at the level of the country and critical mass is a major factor. Today in Europe we have several challenges: return on asset are in average less than the cost of capital. Also, in capital market the US banks are still dominant. In some countries the reengineering of the banking industry is too slow (Italy, Spain, Germany). In France we have consolidated banks around 5 major groups with regional or global competitive critical mass and kept a limited number of specialized smaller banks. In Russia, the Central bank developed a positive dynamic to address this competitive issue by concentrating the number of banks, monitoring public/ private banks competitive gaps and introducing new technologies / market places to create a level playing field & facilitating financial inclusion.
2- To rely on robust & competitive products & services. The objective is to transform risk in secured and efficient instruments and find the proper balance between credit and capital market intermediation. In France we are half way, 40% market, 60% credit. But credit and market need also to be intermediated through fund management instrument to give to the investors another level of risk repartition and covering. At the European level the strategy, after addressing prudential issues through CRD & “banking union” is to reinforce this rebalancing by a set of regulations that increases the diversity of sources of funding through “capital market union” a union for investment and financing giving Europe the necessary critical mass for better liquidity and assets costs.
3- The inspiration for this product framework is the long-term investment strategy. In France our long-term task force chaired by Gerard de la Martinière just issued a new report. The main message is that long term finance is not just related to long term instruments, as infrastructure, green project bonds, equities but about “the strategy deployed by any operator holding stable resources that allows asset allocation able to generate an economic return over time”.
4- To rely on a “smart regulation” framework. Smart means a responsible regulation integrating strategical objectives vs 3 pillars: growth, sustainability, welfare. This regulation implies a coworking environment between regulators & regulees based on common understanding & trust.
In our fragmented and over complex world driven by categorial short term interests, to win this battle and being ambitious for our country we need a vision and build consensus first to share the vision from top to bottom (the citizens) & second to implement all over the chain the correct processes. As finance is concerned, that should be the role of financial centers, bringing together all constituents of the financial industry and structuring a dialogue over priorities and strategical framework. As we are not in an isolated but interconnected world this consensus on compatible economic & financial designs also needs cross fertilization and consensus building. That is why structuring some multilateral dialogue between financial centers is more valuable than just competing among ourselves. That is the objective of this recent initiative the WAÏIFC, just created in Brussels last September, including among 12 others, Moscou & Paris.
EF de Lencquesaing