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New Centres of Economic Power: Towards a 21st Century Global Economic Architecture

Anförande vid IISS-Geo-Economic Strategy Summit, Bahrain

The topic of the days here has in themselves illustrated the changing world we are living in.

For most of the 20th century, questions of strategy were questions primarily of ideological rivalries and the evolution and deployment of military power.

But the focus of our discussion on the 21st century has been on the importance of economic strength, economic growth and economic integration when it comes to shaping the strategic relationships of the world of tomorrow.

But that does not mean that age of politics has been totally replaced by the age of the markets.

The last few decades have certainly thought us that without proper markets - domestic, regional, global - development simply will not happen. Countries seeking to shield themselves from markets are countries curtailing their own future.

But the last few years have also illustrated that a world that neglects to take its politics seriously is a world heading for an instability that will threaten the future also of the markets.

The megatrend of our age is undoubtedly the process of globalisation - facilitated by profound political changes during the past few decades and driven also by the revolution in science and technology we are in the middle of.

A year ago it might have been wise to speak about this issue in somewhat more careful language.

The world economy had just survived the near-death experience on the financial markets in the proceeding autumn.

And global growth was plummeting in a way not seen in modern times, capital flows had more or less ceased to exist and we were faced with the risk of state failures caused by economic collapses in several parts of the world.

The risk of a rapid rise of protectionism, the gradual collapse of globalisation and a new age of brutal national and regional rivalries had to be taken very seriously.

No one - literally no one - could be certain where we were heading.

The answer was twofold. New mechanism for global dialogue - in particular the G20. And the mother of all stimulus programs -in virtually all countries, with China in the lead.

The result is that the most serious threat is gone - the world economy is reviving. But partly as a consequence of the measures that were taken we are now dealing with a debt and deficit crisis that most immediately is centred on Southern Europe but is causing many to take a look at figures also for the United Kingdom and the United States.

A difficult situation - but let's note that we are all still alive and that no one is predicting the end of the age of globalisation.

The most significant thing with the profound crisis of the last few years is thus not what happened - but what did not happen.

The megatrend of globalisation has again demonstrated its profound resilience. And few things are more important.

It's against this profound positive background that we are discussing the challenges ahead.

In his recent report on the future of our European single market, Mario Monti notes that we are now in a period of both "market fatigue" and "integration fatigue", and that it will require a new political will to drive the necessary issues forward.

That's certainly correct.

But I believe we are in the beginning of a political process to shape a more sustainable globalisation for the decades ahead.

It will take its time. It will have its ups and downs. But I believe the logic of things will carry it forward.

The public deficit crisis in a number of European countries will force them to face the even more serious reform deficit they have been building up.

In fact, a good crisis can be a good opportunity.

Part of the Nordic world built up a profound reform deficit during the 1970's and 1980's - after a very good period in 1950's and 1960's.

But when the crisis hit us in the early 1990's, our answer was not only to tackle the budget deficits, but even more the reform deficit.

The result is now there to be seen.

The Top of Europe is now the top of the world in virtually every one of the indexes of globalisation, network readiness or competitiveness published in the last few years.

What we did can be done by others. The peoples of the Baltic world are not genetically superior to the peoples of the Mediterranean world - or of the Anglo-Saxon countries.

My working assumption is that the present crisis will lead to a new wave of structural reforms in the European economies in the coming years.

They were necessary before the crisis - the demographic challenge was not unknown - but now they are obviously urgent.

But this should be seen in the wider regional and global context as well. Europe is part of a global neighbourhood that faces major challenges in the decades ahead.

During the last two decades the magnetism and the model of Europe has transformed the future of the app 100 million peoples of Central Europe.

These 10 countries have been transformed virtually beyond recognition. The largest of them - Poland - has performed well also during this difficult period.

But the task of transforming our part of the world is by no means completed.

There are a further 100 million people knocking on our door - Turkey as well as the nations of the Western Balkans.

That we have an interest in their stability and prosperity is obvious.

But it should also be clear that we would benefit from the demographic dynamism and economic growth potential that Turkey represents.

The economic reforms undertaken by that country since it joined the customs union of the European Union have been profound - we see it in the figures today.

Beyond these our most immediate concerns we face significant tasks towards our East as well as our South and Southeast.

The modernisation and European integration of the 80 million peoples of our Eastern Partnership countries should hopefully give more strength to modernisation and integration also for the 140 million people of Russia.

And on the southern shores of the Mediterranean, and beyond the borders of Turkey, we see countries were the modernisation and reform challenges is even more acute.

These countries will add a further 600 million people or so - equal to two Egypt's - to their populations within the next two decades.

They will have to open up their societies and their economies in a far more fundamental way in order not to betray the aspirations of these new hundreds of millions of individuals with the political consequences this might have.

As the Iranian model has faded and failed - it was finally beaten to death on the streets of Teheran last year - the Turkish model of reforms - and European aspiration - has certainly gained in attractiveness.

The way we Europeans handle the reforms of our economy, the integration of the aspiring parts of our immediate neighbourhood and the modernisation and liberalisation drive of our wider environment will be of profound also global importance.

These are not only large areas of significant economic potential for growth - they also happen also of areas of political potential for conflict.

The handling of their economic challenges will have a substantial impact on the latter challenges as well.

And our attention must increasingly also focus on what soon will be a billion people in the 47 countries South of the Sahara. And on the new South that is emerging around the globe.

It's not only the return of Asia to the position in the global economy it has throughout most of recorded history - it's the last two centuries or so that have been the exception.

It's a new South that will continue transform the global economy in the decades ahead.

In a couple of decades we will see 90% of the global middle class of perhaps 1,5 billion people living in the new South stretching from Shanghai to Sao Paolo.

But we will also see the emergence of megacities with profoundly new also political challenges.

We might within the same timeframe see another 1,5 billion people living in urban jungles where sometimes necessities like water or public order might be in equally short supply.

It should be obvious to us all that we need to reinforce the institutions and practices of what is loosely described as global governance in order to safeguard the sustainability of the process of globalisation - and discuss how to face all the new challenges that can only be faced together.

The Doha Development Round and the Copenhagen COP15 difficulties have well illustrated that we are no longer living in a world where things can be dictated by the Atlantic powers.

We need to look at reforming the United Nations - clearly its key political body - the Security Council - is not representative of the world today - let alone of tomorrow.

And I believe we need to look at reforming also the G20 group that will be of increasing importance. Its composition is somewhat arbitrary.

In nominal therms the Nordic and Baltic world - and I include Poland - is today the 8th largest economy in the world - larger than Brazil.

And we do have a track record of economic policy and contributions to global development that can take comparison with the G20 member Argentina.

If the G20 should develop in the direction of a Global Economic Council - side by side with the Security Council - then I think its membership should be based on constituency representatives in the same way as we have it in the regular international financial institutions.

Otherwise I see a risk of it gradually losing its legitimacy - South Africa might not automatically always be seen as the representative of all of Africa South of the Sahara, and Saudi Arabia might not automatically always be seen as the representative of the entire Arab world.

And in such an arrangement it would of course also make sense to further streamline the European representation. The Lisbon Treaty was supposed to make things easier in this respect.

Bahrain is a natural place to discuss all of these increasingly important issues.

Between the West and the East, between the North and the South, and with a trading tradition stretching back thousands of year, I certainly look forward towards coming back here again as we take this dialogue forward in the years to come.

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