Published : Sept. 25, 2012 - 20:36
Lagarde says IMF likely to cut global growth estimates
WASHINGTON (AFP) ― The head of the International Monetary Fund, Christine Lagarde, called Monday for urgent action from policy makers in Europe and the United States to turn around a slowing global economy.
“My main message today” is “the urgent need to implement the policy actions required to secure the global recovery,” Lagarde said in a speech at a Washington think tank.
The global economy “is still fraught with uncertainty” after the U.S.-centered 2008-2009 financial crisis ushered in recession.
“Europe obviously remains the epicenter of the crisis and where the most urgent action is needed,” the IMF managing director told the Peterson Institute for International Economics.
Lagarde urged swift creation of a eurozone banking union in the debt-troubled 17-nation bloc, a commitment made by European Union leaders in June that has foundered in disputes between the two largest economies, Germany and France.
The banking union “should be initiated as soon as possible ― to break the vicious cycle between banks and sovereigns,” she said.
Christine Lagarde, managing director of the IMF. (Bloomberg)
“This will require euro area leaders to deliver on their June 29 commitments ― establishing a single supervisory mechanism and enabling the direct recapitalization of banks.”
Lagarde’s remarks came after German Chancellor Angela Merkel and French President Francois Hollande clashed Saturday over plans to allow the bloc’s rescue funds to lend directly to banks instead of through member countries, which would add to their debt woes.
Merkel, who favors a slower process than Hollande in setting up oversight of lenders, will hold private talks with Lagarde on Wednesday, the chancellor’s spokesman said.
Lagarde welcomed the European Central Bank’s decision this month to buy an unlimited number of bonds from distressed eurozone states. “It was clearly a turning point” in the crisis, she said.
She underscored the tough challenges for eurozone countries to implement rescue programs to get their economies back on track, without naming any specific country, such as Greece or Portugal.
“The international community must recognize the huge efforts being made by these countries, an provide them with the support they need, including financing,” said Lagarde, a former French finance minister.
On Friday, the Greek representative on the IMF board said that Europe must bear the costs of any additional funding for Greece’s IMF-EU bailout program due to end by 2014. Greece is seeking a two-year extension.
Thanos Catsambas, in an interview with Kathimerini newspaper, said: “The IMF has exhausted its possibilities to extend the loan beyond the amount approved last March.”
Lagarde also put the United States, where growth is tepid, on notice for action.
U.S. officials need to address automatic tax increases and spending cuts due in 2013, nicknamed the “fiscal cliff” and predicted to shave as much as two percent off economic growth, as well as a growing public debt burden, she said.
The IMF chief pointed to the impact of “political calendars” on these decisions, amid a November 6 presidential and congressional election.
“We all hope that political clarity emerges soon, and with it, actions to avoid the fiscal cliff and, also, a concrete plan to bring down debt gradually over the medium term,” she said.
“We need decision-makers to be real action-takers. We need delivery,” she said.
Lagarde said the IMF would likely lower its global economic growth estimates when they are published on Oct. 9 at an annual meeting with the World Bank in Tokyo, Japan.
“We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July,” she said. “Our forecast has trended downward over the last 12 months.”
In July the Washington-based global lender projected growth of 3.5 percent in 2012 and 3.9 percent in 2013.