Speech on the Global Economy at the Reuters Building

1 October 2007

Speaking at the Reuters building earlier today, the Prime Minister said that the UK's financial "resilience" helped it cope with recent turbulence in the global economy.

• British economy "tested but strong"

Read the full speech:

Prime Minister:

Can I say what a pleasure it is this morning to be with such a distinguished group of men and women who are doing so much for our country, and to be here with you Niall and here at Reuters, this great international company, and in particular to have the honour of introducing to you Alan Greenspan. I think he is acknowledged to be the greatest economist of our generation, he is certainly the most famous and longest serving central bank Governor, he is one of the world's most esteemed statesmen, and as we have seen in the last few days he has become one of the world's best selling authors with his book 'Age of Turbulence'.

He is a towering figure in the international community who combines the qualities of outstanding leadership, extraordinary insight, absolute integrity and a strong sense of social responsibility and internationalism and that is why he is so widely admired, not just in one continent - America - but in every continent of the world. And I am personally very grateful to Alan for the advice that he gave me between 1994 and 1997 when we discussed privately with him how we could make central bank independence work for Britain.

He has been a great friend of the United Kingdom. I am delighted that he was awarded an honorary knighthood by The Queen in recognition of his outstanding contribution to the global economy. I recall at the time I said to one of Alan's officials that he might now address his boss as Sir in future, and he said: "When did we call him anything other than Sir?"

I am particularly pleased to welcome Sir Alan in the presence of so many entrepreneurs, so many business leaders and so many policy makers. And no-one is better qualified than Alan to speak about the great issues that face us today, how each of us, companies, governments and individuals, are having to respond to the speed, the scope and the scale of change in the global economy.

In the last 10 years our commitment to stability has been tested again and again, in the Asian crisis in 1997/8, the Russian crisis, the American recession, the trebling of oil prices, and of course in the last month with a wake-up call for every financial system round the world, a wave of turbulence that started in America, then Germany, has impacted on all countries and tested the stability of our own system. I believe it is because of the resilience of the system that has been built in the United Kingdom - Bank of England independence, the Financial Services Authority, the tripartite system we now have - that we are able to steer a stable course.

I think the main message of the book 'Age of Turbulence' - which I am now advertising to all people here, Alan - is that turbulence is the essence of the new financial system, but what we see now is a greater flexibility, a greater ability to be able to respond to events, and this I think has already proven to be true.

In any other decade but ours a trebling of world oil prices might have caused a recession but I believe the world economy showed itself flexible enough to adjust. Double digit price rises in housing in the United Kingdom in other decades have sparked downturns, but we have been flexible enough to be able to adapt. And I believe that because of the changes that have been made worldwide and then the changes that we have made in Britain, we are sufficiently flexible to adjust when events threaten our growth. And we will certainly continue to take all measures that are necessary to ensure that we are in future even more flexible to deal with events as they arise and to steer a course of stability.

So we will take no risks with the economy, there will be no irresponsible relaxation of pay discipline in the public sector, no unfunded spending commitments, no unaffordable promises, no short term give-aways, and responsible government demands that stability will be our determination first and foremost - yesterday, today and tomorrow.

Now today, thanks to the dynamism and enterprise and public spiritedness of business leaders and workforces represented here today, Britain, this small island with its small number of people, is the fifth largest economy in the world and if things move quickly in a changing global economy, so too the policies we pursue will show that we will change, we will adapt, we will be flexible and we will raise our game.

Winston Churchill once warned of countries facing change that were so timid that they were in his words "resolved to be irresolute, adamant for drift, solid for fluidity and all powerful to be impotent." And he also said that instead of building the present upon the image of the past, we must face directly up to all the challenges of the future.

And I believe that as we move to the next stage of our journey we share the vision of British business and commerce, of a Britain that can lead the global economy. It is because of the strength of the British economy that notwithstanding the primary responsibility of those who own and run banks to prevent problems happening in their own institutions, we were able to guarantee the savers at Northern Rock and at the same time continue to steer a path of low inflation, low interest rates and continued growth.

In the days ahead we will continue to respond with the same calm vigilance. It is time however to recognise that there are changes in the financial system globally as well as nationally that do need to be made. Of course some of the wisdom we need is to refuse, even in the wake of difficulties, to make unnecessary changes. When Enron and WorldCom happened we did not in Britain respond with heavy-handed regulation. I believe that was the right decision then and in the same way we will not make that mistake now, but we will take measures that are necessary.

I want at a global level, as I have always believed it should be, the Financial Stability Forum to become a better early warning system about risks in the international community, I want progress internationally on rules governing liquidity, solvency, regulation and off-balance sheet investments.

Alistair Darling has been working on and will announce the legal changes he wishes to introduce on reform of savers compensation and he will press for the changes that are necessary in European rules.

But our underlying purpose is to make Britain global leaders in all those services and manufacturing sectors where by our skills, our creativity, our enterprise and particularly our flexibility, and backed up of course by investment in infrastructure, we can be world-class.

At every point we should ask of ourselves how can we be first, achieve excellence and lead the world? I believe that we can be a world leader in the science of the future, but to do that we must invest - universities, research institutes, knowledge centres linked up to business, companies challenged across new frontiers and innovation.

And later this week, in response to a review by Lord Sainsbury, we will be announcing measures to help Britain become one of the world's leading high-tech economies. We will set out new plans to make Britain a world leader in medical research and enable the NHS to benefit from innovation in the search for cures and vaccines of tomorrow.

I believe we can be a world leader in energy and environmental technologies, from renewable to carbon capture, including nuclear. And we must not only step up our efforts in research and development, but also ensure that there are more positive incentives for commercial deployment.

We are launching our new £650 million Energy Technologies Institute and that will be for Britain a unique public/private partnership which I hope will be replicated in every continent of the world to pioneer new engineering solutions at the same time as we seek to build a global carbon market from here in London.

I believe that to be a world leader in the creative industries we must and will encourage a renaissance in British design and creativity in our schools, our colleges and our universities, backed up by a network of innovation centres in every region of the country.

In modern manufacturing we will provide the best incentives for research and development and of course we will continue to focus on competitiveness in Europe, resuscitating the Lisbon Agenda for reform, urgent progress that we wish to see in the world trade talks that will benefit Europe and the rest of the world, and I believe that liberalising trade is the only way to secure prosperity in the global economy.

You know better than me how we are and can continue to entrench our position as a world leader in business and financial services, but from the point of view of the government we insist that we will continue to implement our new risk-based light touch approach to regulation, we will make our planning system more flexible and responsive and of course we will work together on infrastructure to invest in our long term priorities. And I believe that that is an important part of London retaining its position as the pre-eminent financial centre in so many sectors.

For decades the idea of Crossrail, a major new railway link between east and west London, has been a dream for business and Londoners alike, connecting central London, the City, Canary Wharf to Heathrow and to commuter areas east and west of the capital. We have already committed £400 million simply to detailed design for the project to give us the best possible basis for making a decision. Work independently tested has established that the appropriate budget for the project is £16 billion, a start for main construction in 2010 and trains beginning to run from the middle of the next decade. No government has previously managed to bring the necessary finance together. In the last few months we have worked night and day to achieve this. A comprehensive package is now needed to fund the £16 billion required, largely from the public sector but also including the proceeds from a business rate and an additional contribution from certain London businesses and developers who would benefit significantly from Crossrail.

I want the project to go ahead immediately, subject to the satisfactory conclusion of detailed negotiations for additional contributions from all beneficiaries, and the City of London will need to make a significant contribution. This is a huge national project, vital for the long term prosperity of our capital city and indeed vital to the whole country. And if others are prepared to play their part the necessary funding from the government will be provided in our Spending Review, funding only possible because we have kept spending under control in other areas.

Dr Greenspan says in his new book "We are living in a new world, the world of a global capitalist economy that is vastly more flexible, resilient, open, self-correcting and fast changing than it was even a quarter of a century earlier." It is a world, he says, that presents us with huge possibilities but also new challenges. But he concludes, as I want to conclude, that we are deeply optimistic about the future, perhaps more optimistic than ever about what we can do working together.

Alan, your book says that you started off as a professional musician and you drifted into economics by accident because during the breaks that you had when touring with Henry Jerome's Swing Band as a teenager you would go to the library to read books, and that your choice to read economics was by chance, if you had turned left instead of right in the library you may have ended up as a physicist instead. And you, like me, started by reading the sports pages before we ever read the financial pages. And I am reminded of the story of Earl Warren, who said that he looked at the sports pages first because it told him a great deal about human achievement, and he looked at the front pages last because all it wrote about was human failings.

Now as Federal Reserve Chairman you quickly became known for the unique and successful way you handled not just the economy but the press, and I think all of us as politicians and businessmen and women here can learn a great deal from you. I understand that when on one occasion you saw the New York Times reporting your comments as: "Greenspan Sees Chance of Recession", and the Washington Post saying the opposite "Recession is unlikely, Greenspan concludes", you were delighted at your success in achieving what you called constructive ambiguity.

It was on a day like that that we can remember that memorable phrase that was in the American newspapers, "If I seem unduly clear to you, you must have misunderstood what I said."

But Alan, your expertise, your wisdom, your insight is what the world has benefited from at perhaps its most rapid stage of change and we continue to benefit from it now. And that is why I am delighted to welcome you to speak here today.

Please welcome Sir Alan Greenspan.