Economy entering 'dangerous new phase' -- Lagarde
Published 16/09/2011 | 05:00
The head of the International Monetary Fund (IMF) yesterday urged countries to take bold, co-ordinated action to break a vicious cycle of weak growth and high debt that threatens the global economy and has been worsened by dysfunctional politics.
"Without collective, bold action, there is a real risk that the major economies slip back instead of moving forward," IMF managing director Christine Lagarde said in her first major Washington speech since she assumed her post in July.
She warned that the world economy had entered a dangerous new phase with global growth slowing as advanced economies struggled with an "anaemic and bumpy recovery".
In contrast, emerging economies faced overheating pressures with inflation rising, strong credit growth and expanding current account deficits, she said.
Ms Lagarde said timid growth and weak public balance sheets in developed nations were feeding negatively on each other, fuelling a crisis of confidence and restraining demand, investment and employment.
"This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," she said.
A bitter political fight over US debt in Washington during the summer and questions about Europe's ability to contain the debt crisis have shaken business, consumer and global financial market confidence, putting a brake on growth.
The focus in Europe has been on Greece, with financial markets questioning whether the 17-nation eurozone will be able to keep Athens afloat.
Ms Lagarde said she was reassured by a joint statement on Wednesday from German Chancellor Angela Merkel and French President Nicolas Sarkozy. The leaders said Greece would stay in the eurozone in comments meant to defuse market concerns Athens could drop out of the currency bloc.
"It is a clear indication from themthat the future of Greece is within the eurozone," Ms Lagarde said.
Keeping Greece in the eurozone would, however, come at a price, she said, adding that Greece had only partly implemented the austerity measures called for under an IMF-European Union rescue.
"It is a question of reigniting the urge to actually deliver under the commitments that were made by the Greek government and by parliament," she said.