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IMF chief warns on US default's far-reaching impact

IMF chief warns on US default's far-reaching impact
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The new International Monetary Fund chief Christine Lagarde has said that Washington must speedily resolve a political stalemate over raising the debt ceiling and the euro zone should “quickly” implement its sovereign debt crisis fighting plan to avoid more “turbulence”.

Speaking in New York she warned of serious consequences for the world economy if US politicians fail to reach an agreement on raising the debt ceiling by next Tuesday’s deadline: “The critical objective is now for the United States to be able to increase the debt ceiling with a view to avoiding a default, which would be terrible for the United States, which would be terrible for the economy at large.

Lagarde said she hoped “the political courage shown by European leaders will soon be followed by bold fiscal action in the US”.

As she spoke the dollar continued to fall against a range of currencies.

Lagarde called on the United States to develop a credible plan for financial changes that address its public debt but cautioned that near-term budget cuts could hit an already sluggish economy.

“The United States could face another jobless recovery. That is why we’ve advised against fiscal consolidation that is unduly hasty — even as we stress the importance of getting a fiscal consolidation plan agreed soon,” she said.

On the euro zone Lagarde urged European leaders to quickly implement measures agreed at a recent EU summit to tackle the region’s debt problems and to strengthen economic governance.

Fiscal problems in euro zone periphery states such as Greece, Portugal and Ireland revealed the risks posed by an incomplete economic and monetary union, she said.

Turning to Japan, she called for ambitious measures to tackle the country’s very high public debt levels and urged emerging economies to act to curb signs of overheating.

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