IMF still keen on eurozone rate cut in face of weak growth

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IMF still keen on eurozone rate cut in face of weak growth

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One day after the International Monetary Fund cut its forecast for global growth this year to just 3.3 percent, IMF head Christine Lagarde has been trying to put the best spin on the austerity programmes that many blame for the lack of growth.

She says it could have been much worse: “The economic world no longer looks as dangerous as it did; at the same time the pick-up in financial conditions – financial markets – is clearly not translating into a sustained pick-up in growth and jobs.”

For Europe, Lagarde is still keen on an interest rate cut by the ECB saying: “Clearly the ECB is the one that still has room to manoeuvure and it will be for them to determine when is the right time to use that space.

“It’s more important there is fluid transition between central banks and banks. The monetary tools that the ECB could use are properly transmitted and the lower rates can translate to lower rates for the small and medium sized enterprises as well.

“It’s a combination of top-down and bottom up. There needs to be enough strengthening as well as restructuring if need be of the banks in the eurozone, and the right influx from the top at the right moment. That should unleash much-needed credit for households to invest again.”

But economist Charles Wyplosz from the International Money and Banking Studies Centre questioned the whole IMF approach.

He told euronews: “Austerity has produced the same results it always does, that is there’s no growth, no return to growth. I don’t see why the IMF is surprised, the IMF is well aware of this. It’s imposed austerity on all countries where it has stepped in. The ECB could cut its interest rate a little bit, but it is virtually at zero, there’s not much it can do. It’s now up to the governments and the IMF: they can stop the austerity, it doesn’t work.”

After three years of crisis, the unemployment and GDP figures appear to show that austerity is not working, nor is the money printing by central banks producing the long looked for economic recovery, and many in the financial world fear it is actually paving the way for future crises.