After years of pushing austerity, the International Monetary Fund is now telling governments they must spend more to boost growth and create jobs, but at the same time continue economic reforms.
IMF head Christine Lagarde advised that spending particularly on infrastructure projects by countries that can afford it – like Germany and the US – will counter the “brittle, uneven recovery”.
Lagarde told reporters: “This new momentum – with hopefully more growth, more jobs, better growth, better jobs – is what we would certainly call upon the [IMF] membership to produce. More growth-friendly fiscal policies can be put in place. Potential labour reforms and fiscal policies adjusted to support job market reforms, which we believe could make a lot of sense.”
She spoke one day after EU leaders met in Italy for a jobs summit which produced no concrete measures, just more wrangling over government spending and cutting public debt.
Germany continues to hang tough with Finance Minister Wolfgang Schaeuble warning “writing checks” is no way to boost eurozone growth.
He said the only way for France and Italy to cut their unemployment totals is to implement substantial structural reforms.
As well as rejecting more government spending as a cure for the eurozone’s weakness Schaeuble dismissed the prospect of recession for Europe’s biggest economy.
“We don’t have a recession in Germany, we have a weakening of growth,” he said at a Bertelsmann Foundation event on the sidelines of World Bank and International Monetary Fund meetings.