SEPTEMBER 15, 2011, 2:19 P.M. ET
IMF Chief: Without Bold Action, Major Economies Risk Slip Backward
WASHINGTON (Dow Jones)--Major global economies must act quickly, boldly and decisively to avert another world-wide financial and economic meltdown, the head of the International Monetary Fund warned Thursday ahead of a meeting of the Group of 20 industrial and developing nations meeting next week.
IMF Managing Director Christine Lagarde said that as the global economy is entering a dangerous new phase of the crisis, the path to a sustained recovery is "much narrower than before, and getting narrower."
Weak growth and bad government balance sheets in Europe and the U.S., combined with a financial system only partly repaired and a lack of a concerted policy response is "fueling a crisis of confidence and holding back demand, investment and job creation," she said.
"This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," Lagarde said at a speech at the Woodrow Wilson Center in Washington.
To help put the global economy back on the path to recovery, European banks must build up their capital buffers, euro-zone and U.S. governments must outline credible paths to lower massive debt overhangs, major economies must adequately repair the financial system and key emerging markets must boost demand, she said.
"This is no time for retreat, for half-measures, or for muddling through.... The path is clear. The time is now. We must act," Lagarde said.
-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com
--IMF chief urges world financial leaders, central banks to "act now" as path to recovery narrowing.
--There's growing support for additional bond-buying programs for weak euro-zone sovereign debt.
--On the anniversary of the Lehman Brothers collapse, the risk of a global financial meltdown is rising.
(Adds additional IMF chief comments, background and details throughout, starting in the first paragraph)
By Ian Talley
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Major global economies--and some of their central banks--must act quickly, boldly and decisively to avert another world-wide financial and economic meltdown, the head of the International Monetary Fund warned Thursday ahead of a meeting of the Group of 20 industrial and developing nations.
IMF Managing Director Christine Lagarde's comments come as the European Central Bank tapped the Federal Reserve and three other central banks for U.S. dollars for European banks that are having difficulty raising needed dollars in the private markets.
Welcoming the action, the IMF chief said later in an interview on CNBC, "It shows that they will do what it takes to actually maintain stability in the financial system."
Besides providing liquidity to European banks, there is also growing support for additional bond-buying programs, both through the ECB and from emerging markets.
Lagarde warned that as the global economy is entering a dangerous new phase of the crisis, the path to a sustained recovery is "much narrower than before, and getting narrower."
Weak growth and bad government balance sheets in Europe and the U.S., combined with a financial system only partly repaired and a lack of a concerted policy response, is "fueling a crisis of confidence and holding back demand, investment and job creation," she said.
"This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," Lagarde said at a speech at the Woodrow Wilson Center in Washington. She said Europe responded too slowly in backstopping troubled peripheral economies such as Greece and Ireland, but stronger EU economies transitioned too fast out of stimulus programs and into fiscal consolidation, crimping growth.
To help put the global economy back on the path to recovery, European banks must build up their capital buffers, euro-zone and U.S. governments must outline credible paths to lower massive debt overhangs, major economies must adequately repair their financial systems and key emerging markets must boost demand, she said.
"This is no time for retreat, for half-measures, or for muddling through.... The path is clear. The time is now. We must act," Lagarde said in her prepared remarks.
In an unprecedented move for a U.S. official, Treasury Secretary Timothy Geithner is heading to the European finance ministers' meeting in Poland to urge the euro zone to move more aggressively to resolve its escalating sovereign debt crisis. Washington is increasingly frustrated about the sluggish pace and action by Europe. Although euro-zone leaders agreed in July on plans to expand their EUR500 billion bailout facility powers, they have yet to fully ratify it given the hobbled democracy of the European Union.
Some EU members, in particular Germany, have been reluctant to expand the bailout facility powers. But with an interbank lending crunch developing and escalating market concerns about the exposure of Europe's major banks to bad sovereign debt in the euro zone, the need for decisive action, and a clear plan, is becoming more urgent.
As if to underline the growing risks, Lagarde twice mentioned the spectacular collapse of global financial institution Lehman Brothers in 2008 that accelerated the U.S. financial crisis into a global meltdown in her prepared remarks. Thursday is the third anniversary of the firm's declaring bankruptcy.
Markets are anxiously watching Greece, a focal point of the sovereign debt crisis, to see if it will default on its obligations. Although Athens failed to meet many of the targets required to get the next tranche of a joint EU/IMF loan, economists widely expect Greece to get the next installment. That will not only allow Athens to pay off coming debts, buying it more time to push through additional economic overhauls and privatization programs, it will also create breathing room for the rest of the euro zone to get a newly empowered bailout facility operational.
"If there has been no implementation, then we don't pay," Lagarde said, adding, "Time is running short and the Greek authorities have to deliver." But the IMF chief also tempered her comments, saying that some may argue Greece isn't doing enough, fast enough. "But it's a question of keeping at it...it's a question of re-igniting the urge to deliver," she said. There's been disagreement between Europe and the IMF about the stringency of requirements for the next tranche for Greece; Europe wanted additional measures the IMF feared would be politically infeasible for Athens to implement.
Once euro zone governments ratify the European Financial Stability Fund, or EFSF, the EU will be able to pre-emptively lend to governments, recapitalize banks that have insufficient buffers against bad debt, and buy bonds from ailing countries such as Italy and Spain.
Geithner is expected to dust off a proposal previously discussed with euro-zone officials that would use part of the EFSF to backstop continued buying of Spanish and Italian bonds.
Aside from the risk of another Lehman-style catastrophe, economists fear the future of the euro area itself is at stake. The U.S, already on the edge of a recession, fears the European crisis will tilt its economy into another downward dip. China fears that its biggest growth drivers--trade partners in Europe and the U.S. will stall its strong growth at a time of rising commodity prices. And the rest of the world's economies are exposed to the fallout at a time of increased geopolitical tensions in the Middle East and North Africa.
Lagarde also said key emerging-market countries, a likely reference to China, could encourage global growth by appreciating their currencies.
-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com
IMF Chief: Without Bold Action, Major Economies Risk Slip Backward
WASHINGTON (Dow Jones)--Major global economies must act quickly, boldly and decisively to avert another world-wide financial and economic meltdown, the head of the International Monetary Fund warned Thursday ahead of a meeting of the Group of 20 industrial and developing nations meeting next week.
IMF Managing Director Christine Lagarde said that as the global economy is entering a dangerous new phase of the crisis, the path to a sustained recovery is "much narrower than before, and getting narrower."
Weak growth and bad government balance sheets in Europe and the U.S., combined with a financial system only partly repaired and a lack of a concerted policy response is "fueling a crisis of confidence and holding back demand, investment and job creation," she said.
"This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," Lagarde said at a speech at the Woodrow Wilson Center in Washington.
To help put the global economy back on the path to recovery, European banks must build up their capital buffers, euro-zone and U.S. governments must outline credible paths to lower massive debt overhangs, major economies must adequately repair the financial system and key emerging markets must boost demand, she said.
"This is no time for retreat, for half-measures, or for muddling through.... The path is clear. The time is now. We must act," Lagarde said.
-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com
--IMF chief urges world financial leaders, central banks to "act now" as path to recovery narrowing.
--There's growing support for additional bond-buying programs for weak euro-zone sovereign debt.
--On the anniversary of the Lehman Brothers collapse, the risk of a global financial meltdown is rising.
(Adds additional IMF chief comments, background and details throughout, starting in the first paragraph)
By Ian Talley
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Major global economies--and some of their central banks--must act quickly, boldly and decisively to avert another world-wide financial and economic meltdown, the head of the International Monetary Fund warned Thursday ahead of a meeting of the Group of 20 industrial and developing nations.
IMF Managing Director Christine Lagarde's comments come as the European Central Bank tapped the Federal Reserve and three other central banks for U.S. dollars for European banks that are having difficulty raising needed dollars in the private markets.
Welcoming the action, the IMF chief said later in an interview on CNBC, "It shows that they will do what it takes to actually maintain stability in the financial system."
Besides providing liquidity to European banks, there is also growing support for additional bond-buying programs, both through the ECB and from emerging markets.
Lagarde warned that as the global economy is entering a dangerous new phase of the crisis, the path to a sustained recovery is "much narrower than before, and getting narrower."
Weak growth and bad government balance sheets in Europe and the U.S., combined with a financial system only partly repaired and a lack of a concerted policy response, is "fueling a crisis of confidence and holding back demand, investment and job creation," she said.
"This vicious cycle is gaining momentum and, frankly, it has been exacerbated by policy indecision and political dysfunction," Lagarde said at a speech at the Woodrow Wilson Center in Washington. She said Europe responded too slowly in backstopping troubled peripheral economies such as Greece and Ireland, but stronger EU economies transitioned too fast out of stimulus programs and into fiscal consolidation, crimping growth.
To help put the global economy back on the path to recovery, European banks must build up their capital buffers, euro-zone and U.S. governments must outline credible paths to lower massive debt overhangs, major economies must adequately repair their financial systems and key emerging markets must boost demand, she said.
"This is no time for retreat, for half-measures, or for muddling through.... The path is clear. The time is now. We must act," Lagarde said in her prepared remarks.
In an unprecedented move for a U.S. official, Treasury Secretary Timothy Geithner is heading to the European finance ministers' meeting in Poland to urge the euro zone to move more aggressively to resolve its escalating sovereign debt crisis. Washington is increasingly frustrated about the sluggish pace and action by Europe. Although euro-zone leaders agreed in July on plans to expand their EUR500 billion bailout facility powers, they have yet to fully ratify it given the hobbled democracy of the European Union.
Some EU members, in particular Germany, have been reluctant to expand the bailout facility powers. But with an interbank lending crunch developing and escalating market concerns about the exposure of Europe's major banks to bad sovereign debt in the euro zone, the need for decisive action, and a clear plan, is becoming more urgent.
As if to underline the growing risks, Lagarde twice mentioned the spectacular collapse of global financial institution Lehman Brothers in 2008 that accelerated the U.S. financial crisis into a global meltdown in her prepared remarks. Thursday is the third anniversary of the firm's declaring bankruptcy.
Markets are anxiously watching Greece, a focal point of the sovereign debt crisis, to see if it will default on its obligations. Although Athens failed to meet many of the targets required to get the next tranche of a joint EU/IMF loan, economists widely expect Greece to get the next installment. That will not only allow Athens to pay off coming debts, buying it more time to push through additional economic overhauls and privatization programs, it will also create breathing room for the rest of the euro zone to get a newly empowered bailout facility operational.
"If there has been no implementation, then we don't pay," Lagarde said, adding, "Time is running short and the Greek authorities have to deliver." But the IMF chief also tempered her comments, saying that some may argue Greece isn't doing enough, fast enough. "But it's a question of keeping at it...it's a question of re-igniting the urge to deliver," she said. There's been disagreement between Europe and the IMF about the stringency of requirements for the next tranche for Greece; Europe wanted additional measures the IMF feared would be politically infeasible for Athens to implement.
Once euro zone governments ratify the European Financial Stability Fund, or EFSF, the EU will be able to pre-emptively lend to governments, recapitalize banks that have insufficient buffers against bad debt, and buy bonds from ailing countries such as Italy and Spain.
Geithner is expected to dust off a proposal previously discussed with euro-zone officials that would use part of the EFSF to backstop continued buying of Spanish and Italian bonds.
Aside from the risk of another Lehman-style catastrophe, economists fear the future of the euro area itself is at stake. The U.S, already on the edge of a recession, fears the European crisis will tilt its economy into another downward dip. China fears that its biggest growth drivers--trade partners in Europe and the U.S. will stall its strong growth at a time of rising commodity prices. And the rest of the world's economies are exposed to the fallout at a time of increased geopolitical tensions in the Middle East and North Africa.
Lagarde also said key emerging-market countries, a likely reference to China, could encourage global growth by appreciating their currencies.
-By Ian Talley, Dow Jones Newswires; 202-862-9285; ian.talley@dowjones.com