IMF's Lagarde wants Europe to boost bailout fund

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IMF's Lagarde wants Europe to boost bailout fund

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The head of the International Monetary Fund has called on European governments to boost the size of their rescue fund.

On a visit to Germany, Christine Lagarde, said the region’s leaders should also consider ways to share financial risk, such as common eurozone bonds, to address the sovereign debt crisis.

In a speech at the German Council on Foreign Relations in Berlin, Lagarde said the world economy faced a “defining moment” that required quick, collective action: “Let me just offer my perspective on what remains to be done, and in my view there are three imperatives: One is stronger growth, two is larger firewalls, three (is) deeper integration.”

By firewalls, Lagarde meant systems to stop some countries’ problems spreading to others — such as contagion from Greece to Italy, Spain or even France.

The IMF has helped fund a series of eurozone bailouts in the past two years, but because of the contagion threat wants to boost its lending capacity and feels that the eurozone also needs to increase the amount of money and support for the new rescue fund it is set up to be known as the European Stability Mechanism.

After she made her speech, euronews spoke to Christine Lagarde, the Managing Director of the International Monetary Fund.

Stefan Grobe, euronews: “Let me start with the global economic outlook, now that 2012 has just started. In your latest statements, you were worried about growth prospects and rising uncertainty. But recently we have seen some rather positive economic data from the United States, from Germany, from China – aren’t you a bit too pessimistic?”

Lagarde: “We certainly have seen for the last few days some positive signs, but it does not necessarily address all the issues that need to be addressed. We think that 2012 should be a year of healing. And for that, comprehensive solutions need to be put in place in a cooperative fashion, where, for instance, the euro partners in the eurozone, focus on growth, focus on higher firewalls and better and more integration.”

euronews: “Let me get to what the IMF came up with recently. The IMF is proposing to raise its lending capacity by as much as $500 billion after identifying a potential need for $1 trillion in financing in coming years. That’s an extraordinary number. What do you want to do with that money?”

Lagarde: (laughs) “Well, it is certainly not for the pleasure of raising high numbers and playing with the big figures. We have calculated the financing needs for the next two years on a global basis in case sensible measures are taken going forward.”

euronews: “The follow-up question, of course, is: who will fund this? The Americans have already announced that they have no intention to seek additional resources for the IMF. And even G20 leaders in Cannes last year were at odds over the issue. Euro countries have pledged up to 200 billion euros, but that’s not enough. So, who is going to provide the rest of these funds?”

Lagarde: “There is a commitment by the euro partners. I have received also indications by other members of the (IMF) membership that they will be prepared to participate in the effort. Particularly so, if the Europeans within the euro zone decide to strengthen their firewall. So we have options at the moment, discussions, negotiations, we will continue those, and certainly in the hope that the IMF can, actually, play its part as is expected by the membership and as it is called for by the articles of the Fund.”

euronews: “One last question: you will be in Davos this week for the World Economic Forum. What do you want to accomplish there? Whom do you want to meet?”

Lagarde: “Well, first of all I want to really communicate, I hope, properly the message that I have, that this is not just doom and gloom and there is a way out. There is room for the appropriate set of policies to turn the situation around. But what I’m also looking forward to in Davos is to meet all sorts of people. I very much think that in a global economy that is ours we need everyone. It’s not as if it had to be corridor thinking. We have to be open to new ideas, new models, and Davos is helping in that respect.”