April 3, 2012
WASHINGTON — The managing director of the International Monetary Fund called on the world’s developed nations on Tuesday to “increase our firepower” to better confront global financial strains like those now in play in Greece and several other Eurozone nations.
“We certainly need more resources,” Christine Legarde told the annual meeting of The Associated Press. But she did not specify how much more was needed. Lagarde said the IMF would address that question at its spring meeting in two weeks.
Lagarde said the global economy is making some advances in digging itself out of a punishing recession, but that the recovery remains very fragile, especially in Europe. She suggested cutting government spending too quickly in developed countries like the United States and larger European nations could make things worse, not better.
Policymakers on both sides of the Atlantic need “breathing space to finish the job,” she said. Lagarde also said that Europe’s faltering would quickly spread and the U.S. recovery, slowly gaining strength, “might well be in jeopardy.” She said that “America has a large stake” in how Europe and the rest of the world fares.
Lagarde said it is important to continue and expand emergency programs among the 17 countries that use the euro to help heavily indebted countries there.
“We should not delude ourselves into a false sense of security,” she said. “The recovery is still very fragile. The financial system in Europe is still under heavy strain. Debt is still too high, public and private. Stubbornly high unemployment is straining the seams of society….Rising oil prices are clearly another cloud on the horizon.”
Lagarde’s remarks came after the Eurozone countries on Friday boosted their emergency bailout funds for heavily indebted countries by $1.1 trillion (800 billion euros). That was short of the $1.3 trillion (1 trillion euros) that Lagarde and other international leaders have said is needed to calm financial markets.
On Tuesday, she said, now that the Europeans have moved first to raise their firewall, “the time has come to increase our firepower.”
Lagarde also suggested that bold steps are needed such as those taken by the U.S. Federal Reserve and the European Central Bank to help “keep growth strong and steady.”
She said most countries are running deficits that are too high and “need to bring down debt over time. And, yes, some countries under pressure have no choice but to cut deficits today. But a global undifferentiated rush to austerity will prove self-defeating. Countries like the united States with low costs of borrowing should not move too quickly.”
Those remarks thrust her into the U.S. presidential debate, where Republicans are united in calling for deep cuts in federal spending, while President Barack Obama — who was to address the meeting later Tuesday — and congressional Democrats are calling for more job-creating spending, along with raising taxes on the wealthy to help trim budget deficits now exceeding $1 trillion a year.
Lagarde noted that over 200 million people globally, including nearly 13 million in the U.S., are without work, declaring that “jobs must be a priority.”