The Spoken Word Is Final

Federal Chancellor
President of the National Council
President of the Council of States
Mr. and Ms. Schwab
Excellencies
Ladies and Gentlemen

It is a great pleasure and an honor to have the privilege of welcoming you to this year's World Economic Forum in my native canton - the canton of the Grisons.

Back in 2008, we were all fully aware that the severe financial crisis and the ensuing global economic slowdown in 2008 and 2009 would leave deep and long-lasting scars in our economies. This is particularly true for most advanced economies. Many of us have taken strong measures to correct the large macroeconomic imbalances created by these crises. We have also made significant efforts to reduce the systemic risks coming from the financial sector. Emerging market economies have also played a crucial role in the past years. Their strong growth performance provided invaluable support for the global economy.

Unfortunately, economic developments in the second half of last year have been discouraging. The global economic outlook has deteriorated and uncertainty as regards financial markets and public finances remains high. Clearly, the measures taken until now have not been sufficient and complacency would be the wrong attitude. In a world that is increasingly complex and interrelated, efforts to deal with the ongoing challenges must be internationally coordinated. The World Economic Forum provides an important platform to discuss these matters. However, let us not forget. The main responsibility for taking further measures lies with national governments. International coordination is not - and never will be - a substitute for structural reforms in individual countries. We should not shirk our responsibility to take the difficult but necessary steps.

While the short-term issues currently dominate our policy agendas, we should not forget the numerous long-term challenges we all face. As politicians, policymakers and leaders of global companies, our time horizon tends to be short. Results in the near future seem to be what counts. Therefore, we like to ignore issues that have consequences in 20 to 30 years from now. In this regard, the World Economic Forum‘s Global Risks Report 2012 provides valuable insights. Chronic fiscal imbalances and increasing greenhouse-gas emissions rank very high on the list of problems. Both of these issues will mainly affect future generations. I am deeply convinced that we must act now for the future. We must not burden the young with problems we have created.

I would like to share some thoughts with you on the two issues I have just mentioned - chronic fiscal imbalances and climate change.

The situation of public finances is a matter for concern in many countries. This is partly a consequence of the financial crisis, but also because some countries have allowed public debt to grow for years. With average public debt of advanced economies currently at over 100 percent of GDP - an increase of 30 percentage points in only three years - we are now in the midst of a serious public debt crisis. Fortunately, the emerging economies have not experienced similar developments. Their public debt remains at relatively low levels.

The dimension of this crisis is such that it has become one of the main risks for the global economic outlook and is threatening the common European currency, the euro. These dynamics must be broken and debt must be brought back down to a sustainable level. This will require politically difficult measures and sufficient growth.

What should worry us even more, is that the current fiscal challenges are only a taste of what we face in the medium and long term. Due to ageing populations, particularly in advanced economies, public finances will have to bear huge additional burdens. These arise not only from commitments made by social insurances, but also from the rapidly rising costs of healthcare. With the baby-boom generation now retiring, the ratio between the work force and the retired is deteriorating to an ever greater extent. This means future generations will have to bear a higher burden.

These facts are not new. Most countries faced with ageing populations regularly publish long-term sustainability reports. These show a dramatic increase of public debt under a no-policy-change scenario. They also show clearly that the later we act, the more it will cost to solve the problems. We have an obligation to act now.

Farreaching measures are necessary to put the financing of social insurances on solid footing. These include, depending on the point of departure, increased contributions and/or reductions in benefits. In the area of health, we need to find ways to contain the explosion in costs. In this context, examining and correcting the system of incentives is key as well as implementing measures to promote better public health. Compromises will have to be found here between what is socially desirable and what is financially feasible.

The world is also facing challenges in energy and environmental policies. Here again, the costs of inaction will be borne mainly by future generations.

The improvement in worldwide welfare is linked to a rise in consumption of energy and environmental resources, including non-renewable resources. The regrettable events in Fukushima have made it clear that nuclear energy cannot guarantee us a safe supply of energy either. Like several other countries, Switzerland has strengthened its efforts to draft a sustainable energy strategy. The aim is to improve the efficiency in energy use, con-serve non-renewable resources and rely to a greater extent on renewable sources of energy. We have also decided in principal to exit from nuclear power generation.

Energy strategies will also have to include the pricing of resources. Increasing prices will be necessary to cover the various externalities and to appropriately influence demand. This should also contribute substantially to environmental conservation and to mitigating climate change. Of course, progress in dealing with these environmental issues depend crucially on international cooperation. Therefore, it is not surprising that environment is a permanent feature of the discussions within this forum.

Allow me to draw a brief conclusion: the short-term challenges to the world economy are daunting. To reduce the considerable domestic and international imbalances, resolute action is required in many countries and cooperation in international fora should be strengthened. While we are fully focused on dealing with the immediate problems, we should not forget the even greater challenges that we face in the long term.

The costs of unsustainable public finances and environ mental conditions are large. We cannot leave these to be shouldered by future generations. Acting now requires the integrity of the policymakers, the cooperation of all responsible bodies and creative solutions.

I am looking forward to interesting discussions at this year's forum and wish you much creative thinking.

World Economic Forum 2012 – “We have an obligation to act now”