AmCham Transatlantic Business Conference

November 12, 2009

Frankfurt
Ambassador Philip D. Murphy

As prepared for delivery.

Es ist mir eine Ehre und eine Freude, vor der dritten Transatlantischen Jahreswirtschaftskonferenz zu sprechen. Ich habe den Großteil meiner Laufbahn in der Privatwirtschaft verbracht. Ich bin zutiefst geehrt, meinem Land als Botschafter in der Bundesrepublik Deutschland dienen zu dürfen. Die letzten drei Monate waren aufregend. Wir - die ganze Familie Murphy - freuen uns jetzt auf die nächsten drei Jahre. Wir werden sicherlich nie vergessen, wie wir den 20. Jahrestag des Mauerfalls mitfeierten.

Dies ist mein erster öffentlicher Auftritt seitdem und meine erste Gelegenheit, den Menschen in Deutschland zu diesem historischen Anlass zu gratulieren. Ich schließe mich Außenministerin Hillary Rodham Clinton, die am Abend des 9. November vor dem Brandenburger Tor sprach, und Präsident Obama, der über einen Bildschirm zugeschaltet war, an: Ich gratuliere den Menschen in Deutschland! Der Fall der Berliner Mauer war ein kraftvolles Symbol für den Sieg der Freiheit. Die verschiedenen Gedenkveranstaltungen boten viele Gelegenheiten, der Menschen zu gedenken, die uns erfolgreich durch die Herausforderungen des 20. Jahrhunderts geleitet haben. Aber eine deutliche Botschaft für die Zukunft zog sich durch alle Gedenkveranstaltungen. Diese Botschaft lautete: Der Fall der Mauer war nicht das Ende unserer Geschichte.

[It is a privilege and a pleasure to address the third annual Transatlantic Business conference. Having spent most of my career in the private sector, I am honored and humbled by this opportunity to serve my country as Ambassador to the Federal Republic of Germany. The last three months have been fascinating. We - the whole Murphy family - are looking forward to the next three years. Tammy and I certainly will never forget the ringside seat we shared with thousands of Berliners as Germany celebrated the 20^th anniversary of the fall of the wall.

This is my first public opportunity to congratulate the people of Germany on this historic occasion. Echoing the words of Secretary of State Hillary Rodham Clinton who spoke live before the Brandenburg Gate on the night of November 9 and President Obama who spoke from the big screen, congratulations to the people of Germany. The fall of the Berlin Wall was a powerful symbol of the triumph of freedom over tyranny. The celebrations at the various commemorative events presented many opportunities to reflect on those who brought us successfully through the challenges of the 20th century. But underlying these reflections and recollections of the past was one clear message -- that ran through all the commemorative events. That message is: Our history did not end the night the Wall came down.]

Speaking before a joint session of Congress in Washington last week, Chancellor Merkel spoke eloquently about the less visible but equally challenging walls we face today. Her overview of the opportunities and challenges that define German-American relations today, framed in the context of her own personal story, is telling. As a young girl she was passionate about the American Dream, about the ideas that the American Dream represented - about opportunity, about initiative, commitment, success. A wall and miles of barbed wire defining the parameters of a deadly killing zone made that concept of unlimited opportunity seem like an impossible goal. But that impossible goal became reality. In that context, the Chancellor's support and indeed passion for the Transatlantic Economic Council as a forum to work together in reinforcing the values that create peace, freedom and prosperity not only within the transatlantic partnership but around the world, is central to what we all do, no matter what side of the Atlantic we call home and no matter whether we are working in the public or private sector.

Why? Because as Germany's President Horst Koehler put it: "The United States and Europe serve as models whether they like it or not. The nations of the world watch carefully whether or not we have good governance, whether we are credible in standing up for our values and whether we use our capabilities and our power to establish the ground rules humanity needs... It is more than ever a question of leadership."

That kind of leadership is now required. At the last Transatlantic Business Conference, the financial crisis -- the most severe crisis since the Great Depression -- had just begun to unfold. It sparked a global recession, from which we are only now just beginning to emerge. We have avoided the worst, but complex challenges still lie ahead - and we dare not return to business as usual. Witness the Chancellor's remarks regarding economic growth in her November 10 speech to the Bundestag.

Now is the time for bold, innovative action on the part of the government and on the part of the private sector - on both sides of the Atlantic and around the world. This is a call for action. Collectively, we need to rebuild confidence in our markets so that capital can flow again to help spur global growth. And, we must put in place the sensible, balanced regulation required to prevent the kind of crisis that unfolded over the past two years. While we may never be able to completely predict or even manage economic cycles, we must, in the future, be far better prepared for their consequences.

We need to take the lessons learned over the past 12 months very seriously. What have we learned?

One: We have learned that most of the problems that caused the financial crisis were global. Our response therefore needs to be global. No one country can do it alone. That doesn't mean one size fits all. Countries may share the same objectives and aim for the same results, but may opt to follow different policies, the policies that are best suited to their particular circumstances and ability. They may also choose different policy purveyors, from central banks all the way to new authorities.

Two: We cannot make decisions in isolation. We must collaborate if we are to build a more resilient financial system for the future. We need to ask the right questions of one another. We need to keep talking. That includes all the vital international forums - the G20 which has proved to be an enormously successful tool, the Financial Stability Board, the Basel Committee, the IMF, and also conferences such as this.

And number three: We have learned that when a financial system weakens in one country, prosperity is hurt everywhere; and those weak financial systems jeopardize the financial well-being of individual citizens, whether they are rich, whether they belong to the broad middle class, or whether they are struggling to improve their lot in life and move in to the middle class.

We need to translate these lessons into action. Speaking as a diplomat, I will say that we need a 21st century regulatory framework that addresses some of the deficiencies that the past 18 months made so painfully clear. Throwing my private sector experience into the pot, I would like to say we need to work together to come up with a viable system that allows for enlightened capitalism so that the next aspiring entrepreneur, growing up now somewhere in Frankfurt on the Oder or Frankfurt am Main, does not feel limited by impossible dreams - and understands the difference between sensible risk taking and reckless behavior.

Whether looking at a 21st century regulatory framework or the elements of enlightened capitalism, the issues are too complex for me to discuss at length this morning. Looking at the conference program, you will be exploring similar issues. Please allow me to outline briefly a few of the salient, forward agenda items.

We need to embrace a coordinated solution to the moral hazard problem posed by "too big to fail" - a solution that provides strong, accountable supervision of large, interconnected financial institutions and one that creates a resilient financial system that can better absorb failure when it happens. To quote Larry Summers, "Our financial system is not failsafe until it is safe for failure." The objective is not to supplant or replace markets. Nor is it to eliminate all risk. Rather, the objective of regulatory reform is to protect the market system from its own excesses - and to impose the costs of risk-taking not on the taxpayer, but on the risk-takers, where they belong.

We need clear rules of the road for Wall Street that makes fair dealing and honest competition the way for financial firms to win and prosper. The reforms that President Obama and his team are proposing - and implementing - do not restrict personal or institutional initiative or innovation. But looking at the financial crisis of the past years, it is clear that our systems were in some combination of under and/or mis-regulated depending upon the sector of the financial services industry in question.

As with so many events in history, the vast majority of institutions and individuals behaved responsibly. Still, many people found themselves in jeopardy because of the practices of some in the financial industry.

While the remedies may be complicated in some cases, the fact is that there are solutions to almost all - if not all - of the practices I have mentioned. And putting aside the brutal reality that years like 2006 and 2007 did not reflect underlying economic reality and, as a result, the adjustment period may well be painful, the solutions need not choke or inhibit real economic activity and growth. I believe that President Obama, Chancellor Merkel and other global leaders are not only focused on the required fixes but are in reasonable harmony.

We do need to end up with sensible, forward leaning regulation and clear incentives directing talent and capital toward promising long-term opportunities and away from unproductive, short-term activities. The current riddle which I find most vexing is finding the right footing - in policy and in practice - on lending by banks to the real economy. How banks think about allocating their scarce capital and risk appetite between businesses. Broadly speaking, trading and lending is a rhythm we must find soon if we are to sustain the recent promising economic activities here and in the U.S.

We also know that embracing entrepreneurial risk, both business and financial, has the potential for enormous economic growth. Since the 1970's, the venture capital community, has built companies, created jobs, and catalyzed innovation in the United States and here. In 2008, companies started with venture capital accounted for 12.1 million jobs or 11 percent of private sector employment in the U.S. Microsoft, Apple, Intel, FedEx, Google, Medtronic, Hewlett-Packard, Google, even McDonald's, all started out as an idea in one person's mind. Right now, as we speak, some entrepreneur or inventor is revolutionizing the way we manufacture solar panels or build wind turbines; discover a new lightweight battery for electric cars, or develop a safe and affordable way to capture carbon from coal plants. We need to make sure that that inventor - perhaps the next Bill Gates - has access to capital. We can let his mother worry about whether he or she finishes college. Again, credit flow to the real economy and entrepreneurial risk-taking are vital and central ingredients to economic and societal well-being. As we rightly re-regulate, let us preserve these ingredients at all costs.

I'd like to end on A sharp instead of B flat. While we are likely to endure the pains of transition and re-calibration in our respective economies for some time, we have the chance to learn from our mistakes and failures, and, in the vernacular, "have it all." I see no specific reason why the U.S. and German economies can't learn from each other - and each come out the better for it. While conventional wisdom suggests that Germany's social market economy "rounds the edges" off the rough and tumble U.S. form of capitalism - a form of capitalism where there is unlimited upside but also 47 million without health care converge - I would note the following. Per capita, Germany has about the same number of billionaires as does the U.S. In other words, there is real evidence that protecting the downside in a society does not limit the upside. Likewise, it must not be inevitable that health care in the U.S. does not extend to all, that the U.S. economy can't manufacture more and consume less; that the German economy can't consume more and on and on. Nowhere is it written that these cannot be achieved.

Our two countries have faced challenges like this before. In Germany, how many times in the past twenty or sixty years have we heard that the system - in particular, the export engine - cannot adapt to new economic circumstances? In the United States, both a Republican Roosevelt, Theodore, and a Democratic Roosevelt, Franklin, likewise tackled excesses and inadequacies that imperiled our economic viability. Today too we face an enormous challenge, namely, reforming the market system and reviving a new, more sustainable economy, which includes addressing the imbalances in global markets. But if we can meet these challenges, there are more opportunities to create more prosperity and better lives for more people than in any other time in history. This is something we must do.

The event that the transatlantic partnership and the world celebrated on November 9 was a gift, a gift of freedom. But as Hillary Clinton also reminded us, gifts often come with strings. This gift came with a responsibility. It came with a call to action, a responsibility to ensure that the transatlantic alliance be a cornerstone of a global architecture of cooperation in the 21^st century. When historians look back on this period, let them say that this was a period that was difficult and painful, but also a period when profoundly important investments were made that transformed the world's economy and set a foundation not just for equitable and sustained economic growth but for global peace and prosperity.

Meine sehr geehrten Damen und Herren, vielen Dank für Ihre Aufmerksamkeit!