Mr Rehn, ladies and gentlemen,

In opening our financial dialogue today, I would like to stress the growing role it plays in the development and strengthening of financial and economic cooperation between Russia and the European Community. We are pleased to note that there is expansion and progress in many fields: insurance, banking, financial market regulation, accounting and audit standards. Such exchanges are particularly valuable for Russia now as it is improving its legislation and regulation of its financial sector.

Another shared interest concerns initiatives taken by international forums such as the Group of Eight, the Group of Twenty, and the Council on Financial Stability. A logical follow-up has been to establish a working group in a dialogue format on strategies to pull out of anti-crisis measures and ensure sustainable economic development. The group could provide a platform for common approaches with the European Union to the exit strategies and to closer teamwork and coordination on a Group of Twenty framework agreement on confident, balanced and steady development.

Remarkably, our dialogue has coincided with a period of fresh trials and challenges for the world economy. Its recent surge has been waning in the past months. Rapid initial post-crisis economic growth, boosted by extensive state programmes, seems to be coming to an end. A further economic slowdown in the second half of 2010 and in 2011 is a source of concern because developing countries are unlikely to compensate for a dropping demand in the United States and other leading economies.

An unstable situation in financial markets is another disturbing symptom. Its causes are budget and debt problems beleaguering a number of economies, above all in European countries, very slow recovery of private demand, a renewed decline of the US real estate market, and a fairly high level of unemployment in the leading developed countries.

A heated debate on a possible transformation of the financial crisis into a sovereign debt crisis took place about a year ago. The latest events showed that the transformation has in fact happened. It has also emerged that these two crises are interrelated: state debt increases as more is spent on overcoming the crisis, while growing state default risks lead to turbulence in financial markets. The last factor underscores the need for an urgent fiscal correction in the most vulnerable countries and medium-term fiscal consolidation programmes for all developed countries. Although the International Monetary Fund has been advocating the idea for a long time, success in that area has been limited, which can be explained by the political unpopularity of the measures required. But dragging feet on fiscal consolidation until the markets start to get really worried is fraught with danger, as the example of Greece suggests. If the same scenario repeats in a larger country, consequences may prove to be more lamentable not only for the country but for the whole international economy.

We are closely monitoring crisis developments on Europe's debt markets. We welcome the EU's extraordinary measures to support the Greek economy and other Eurozone countries, including a 500 billion euro stabilisation mechanism for Europe's financial system. We expect these will reassure investors and tackle the problems of liquidity and sovereign debt refinancing in the peripheral Eurozone countries. We believe many European states will now have to strike a correct balance between economic growth and massive fiscal consolidation. Furthermore, fiscal consolidation should be backed by a series of structural reforms to increase financial and economic stability, raise productivity and improve the competitive environment.

At the same time, we believe that efforts by developed countries to reduce budget deficits and public debt are inadequate to meet the G20 framework goals. We expect that the working group on economic policy coordination, headed by European Council President Herman Van Rompuy, will come up by the year's end with an effective mechanism to enforce the provisions on debt stability, as set forth in the Maastricht treaty, and agree possible penalties against budget offenders.

For our part, we have drafted an agreement on coordinated macroeconomic policy between Russia, Belarus and Kazakhstan, which are establishing a common economic space. Our intention is to meet regularly to discuss macroeconomic and budget policy of the three states and develop consolidated approaches to economic reforms and macroeconomic stability. We are planning to sign the agreement in the near future.

Increased volatility of reserve currencies is another sign of the global financial system's instability. Attempts by some states to even out their balance of payments and incentivise economic growth by manipulating currency rates are particularly alarming. At the same time, we are not inclined to view global imbalances as solely caused by currency regulation. The main reason is unequal competitiveness of countries in different economic sectors, explained by the structural nature of the trade imbalances.

Another reason why economic imbalances prevail is an incentive monetary policy pursued by some developed countries, above all the United States, which is trying to resolve its structural concerns in this way. In turn, surplus liquidity poses a serious problem for emerging market countries, stimulating capital inflows into their financial markets.

For an economy to be buoyant, it needs renewed trust in its financial institutions and regulators, after it was undermined by the crisis. This is impossible to achieve without in-depth reforms in financial regulation and supervision. Russia fully supports the efforts by the Council on Financial Stability, the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions, and other international agencies regulating supervisory standards and practices. In the course of the day, representatives of our main financial regulators will describe to you Russia's experience of banking and financial market reforms. For our part, we are closely watching the creation of new supranational financial market reviewing authorities in Europe, a process expected to be completed by January 1, 2011. We are eagerly looking forward to a European Systemic Risk Council and three European agencies to supervise securities, banks and insurance companies. Hopefully, we will have time to review these issues today.

One point to bear in mind is that until recently the financial regulation reform has been focused on the leading economies, causing many emerging market countries to doubt the applicability of regulation standards and their impact on national financial systems and economic growth as a whole. Part of the answer has been provided by the G20, as it found a general-purpose financial regulation formula: a two-track approach to financial problems of developed and emerging market countries. We expect this approach to take into account the different financial sectors in developed and developing markets and their unequal involvement in high-risk transactions on the global financial market, a possibly longer adaptation period and less rigid rules for adopting new financial regulation standards.

We also consider it worthwhile to compare notes on the reform of the International Monetary Fund. Unfortunately, neither our recent contacts in the G20, nor the latest meeting of the IMF's International Monetary and Financial Committee have led to any definitive decisions. A number of other aspects are also uncoordinated: changes in IMF governing bodies, size and makeup of the board of directors and the procedure for appointment of managing director and other executive officers. All these issues, when solved, could contribute to a successful Seoul G20 summit.

The proposed 2% to 3% vote shift from developed to developing and emerging market countries appears insufficient. Accordingly, if an expected two-fold increase in capital fails to change the voting pattern in the IMF, such a review will lose any sense.
In conclusion, I would like to wish success to everyone present here today. I hope this occasion will bring us closer together on these and other issues on the international agenda that are of greatest concern to us, will help exchange views on structural reforms underway in our countries and further prioritise areas of effort within our dialogue.

Thank you.