As the financial markets tumbled on Thursday, the head of the International Monetary Fund, Christine Lagarde,warned the crises in the European Union and US are threatening the entire world economy.
Opening the IMF’s annual meeting she said the “path to recovery is narrower than it was three years ago,” when the world’s most developed economies sank into recession.
Lagarde told reporters: “The current economic situation is entering a dangerous phase. So what is the option, It is not a dilemma; it’s a question of timing and a question of confidence. What needs to happen is medium-term, long-term, solid, well anchored measures that will actually aim at restoring good public finances, by reducing deficits, by stabilising debt and gradually reducing it. That has to be first – and at the forefront of any agenda in those economies.”
Lagarde said countries must work together to deal with the growing risks and called on governments to come up with credible plans to get their debt under control, adding she is worried about some governments’ lack of political will to shrink their rising deficits.
She also complained that the financial markets have ignored “bold” efforts by many European countries to address the sovereign debt crisis.
Asked if she thought the euro zone was fundamentally flawed Lagarde said: “I think it will be in the best interest of all to look at the positive side of things instead of looking at the negative side of things and there is obviously a gap between very solid, very strong governmental commitments from the highest levels of those states and the implementation time that is inherent to parliamentary life. As I said couple of days ago, we are no longer in the Napoleonic times when a leader could just snap his fingers and make it happen, we are in democracies and it takes time.”
Her comments about the fragile state of the global economy echoed those of World Bank President Robert Zoellick.
He said that a double-dip recession for the world’s major economies is unlikely but added his “confidence in that belief is being eroded daily by the steady drip of difficult economic news”.