LONDON — The chief of the International Monetary Fund, Christine Lagarde, on Friday urged policymakers to take bold and unified action to see the global economy through “this dangerous phase.”
In a speech delivered just ahead of a meeting of Group of 7 finance ministers in France, Ms. Lagarde emphasized that governments with surpluses or the flexibility to use more direct fiscal action should do so.
The world is “collectively suffering from a crisis of confidence in the face of a deteriorating economic outlook,” she said. “Countries must act now and act boldly to steer their economies through this dangerous phase of the recovery.”
Ms. Lagarde also re-emphasized the fund’s concern about the health of Europe’s banks. Much to the irritation of European Union officials, she recently suggested that the euro zone’s bailout fund should be used to provide a big injection of capital into European banks.
On Friday, she did not back away from that position. “Some banks need additional capital,” she said, warning of the possibility of “a debilitating liquidity crisis.”
Although it is unclear what action will come out of the G-7 meetings Friday and Saturday in Marseilles, which Ms. Lagarde was also to attend, those involved in the discussions said particular focus would be on how euro zone governments might make more money available to the banks, a thorny question, and on getting banks to accept that they need more capital.
So far, Europe’s financial institutions and its governments have rejected any regional plan that would pump more public funds into banks, as the United States and Britain did during the financial crisis. Those compulsory recapitalizations played a crucial role in calming markets during the 2008-2009 financial crisis.
“The picture I have painted is not a rosy one,” Ms. Lagarde said in her speech. “But although the tools have become fewer, policy makers still have options.
“The key is that policy makers act with conviction and urgency while at the same time being nimble.”
Her statement that policy makers should show some fiscal flexibility was seen as a warning for countries like Britain, which has very high budget deficits but low interest rates, and continues to show weak domestic demand.
She praised the fiscal austerity program of the British Chancellor of the Exchequer, George Osborne, who has long insisted that Britain has little flexibility to spend more or tax less. But she also left the door open for critics who say that Britain’s hard-core policy on slashing spending to reduce the deficit might throw the country back into recession.
In the euro zone, Ms. Lagarde emphasized that for the three countries that have received European Union and I.M.F. rescues — Greece, Ireland and Portugal — the burden was on them to meet their deficit targets.
But, she chided the rest of the euro zone leaders for the slow pace in implementing an agreement reached in July to bolster their rescue fund and clear the way for additional aid to Greece. Winning parliamentary approval for the package has been delayed by political opposition in some member states.
“It is essential that euro zone leaders implement their ground-breaking July 21 commitments as soon as possible,” she said.
Article source: http://feeds.nytimes.com/click.phdo?i=b3955eb0f7dc4aec24f100d8b9c6cb96
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