Rising oil prices, trade agreements under-strain, the growing challenge of how to accommodate rapidly developing nations such as China and European and US interests jeolously guarded, the role of the International Monetary Fund and that of it’s chief is as crucial as ever.The man with the task of steering a course for the IMF on the world stage is the former Spanish finance minister,Rodrigo Rato.On a recent visit to Brussels he took time to share some of his financial thoughts with Euronews journalist – Sergio Cantone.
Cantone:Let me first say welcome to EuroNews…I’d like to start with the problem of inflation.It’s soaring in the Eurozone, likewise in the US, so with this in mind do you think that the European Central Bank might raise interest rates?
Rato:We believe that the Federal reserve has to carry on with a progressive increase in interest rates as a consequence of the American economy, while in Europe we think that the current policy of the ECB
is appropriate…At least that is untill there is a clear and stable recovery.The current increase in inflation is a major consequence of the oil price rises.If we don’t include the cost of oil, the inflationary pressure is not that important in the eurozone as a whole, but of course there are other underlying influences.
Cantone:Even though the average growth between this year and the next one will be as little as 1.5 %…?
Rato:A little less, around 1.2… according to our forecasts
Cantone:OK,therefore what can Europe do to stimulate stronger growth?
Rato:In some European countries there’s a problem of consumer confidence, that’s very clear. The internal consumption levels are very low in some regions,while at the same time the levels of saving are very high. That indicates a lack of confidence. This is related to many things including the inability of political leaders to send a clear message about their future policies, but it’s especially related to the labour market.Today’s labour market is not condusive to a stable environment.
Cantone:But it’s also true that in countries such as, Germany, where the former government tried to implement moderate reforms, the recent elections have shown a split-electorate, between those moderate reforms and the more radical policies of the opposition parties.
Rato:But peple didn’t vote against reform. There might have been a split of the vote, but eventually the vote of the majority of Germans went to parties endorsing some form of reform. I don’t accept that people reject reform,I think that European voters want positive changes.
Cantone:You have talked about the single market, but there are others talking-up economic patriotism and the need to defend some European industrial sectors. According to the IMF
is this the right policy?
Rato:I don’t like to do things against consumer interest, look…early in the twentieth century, American capitalism was very nationalistic….there was a slogan saying: “what is good for General Motors is good for America.“Well, I don’t share this slogan, and I think that one of the major successes of the American economy is that it has changed….that’s what I think.
Cantone:But, European governments, national governments are all responsible for this kind of attitude…don’t you think?
Rato:Well, Governments carry much of the responsibility, a government must accept responsibilty,otherwise it would be too easy…
Cantone:Are they guilty?
Rato:The word guilty is too strong, but they are definitely responsible… I believe that governments must deliver promises of change. That means better opportunities for people. It would also be good to have a flexible labour market in Europe…. where if somebody looses a job they can easily find a new one.It’s important to have a European system allowing individual countries to be more efficient and able to create more jobs.It’s also important that in Europe we give people the opportunity to work MORE
hours if they want to do it… obviously within the framework of European legislation… , we are not talking about returning to the old days of 19th century industrial Europe.
Cantone:In Europe there are countries in trouble with the European Commission because of their deficits…..the US also has a huge deficit problem….is this a worry for the IMF
Rato:Well, parts of Europe do have problems with their public deficits,but the whole of Europe has an even worse problem compared to the US, that of an ageing population. It follows that Europe must create margins, but Europe’s problem is not one of saving, but of growth. For the US it’s a different problem, that of saving, yes the US has an ageing population but the consequences are different…..the US has a public debt level of less than 30% of GDP
. Thus although we have different sized economies, America must look to increasing it’s level of saving while Europe must increase its growth. This our analysis.
was created back in the nineteen forties, but the world has changed a lot since then.Do you think that the IMF
needs fundamental reforms and what is it’s future role?
Rato:I admit there’ve been moments when our reccomendations haven’t been that good, but often our advice has frankly been ignored….. for example, when we have called for a reduction in public debt, or advised an enlarged fiscal base, or when we’ve urged more transparency and independence for central banks… or when nobody wants to lend money to another country.
Cantone:But in the Argentinian crisis Domingo Cavallo followed the IMF
Rato:As for the Argentinian crisis, the IMF
explained how and why we made our decisions and we call for transparency and for truth on the matter.It’s difficult to believe that an economical catastrophe of that kind could be blamed solely on an international organization. It’s too far fetched.I wasn’t part of the IMF
at the time it’s difficult to believe.