IMF: Global economy needs collective action now
24 Sep BBC
IMF chief Christine Lagarde has called for countries to “act now and
act together” to keep on the path to economic recovery.
“We are by no means strangers, and we are linked by a common
destiny,” she said at the annual meeting of the IMF and the World Bank
in Washington.
“And these turbulent times must bind us ever closer together.”
Ms Lagarde was speaking after another week of volatility on the
world’s share markets. In Europe, the main share indexes in London,
Paris and Frankfurt all fell about 4% over the week.
Meanwhile, UK Chancellor George Osborne warned time was running out
to tackle the eurozone debt crisis.
Speaking in Washington, where the G20 is also gathering, Mr Osborne
said European leaders had six weeks to end the crisis.
‘Dark clouds’ Ms Lagarde said: “There is a path to recovery. It’s
narrower than it was three years ago but there is a path and we have
options.”
But she added: “There are dark clouds over Europe and there is huge
uncertainty in the US. And with that we could risk a collapse in global
demand.
“Well, so what? Let’s remove the clouds and remove the uncertainty.
Easier said than done, and it requires clearly a collective action.
“We are all in it together and nobody should be under any illusion
that there could be a de-coupling.”
Global shares had slumped on Thursday, sparked by a Federal Reserve
warning late the previous day about the outlook for the US economy.
And on Friday, Greece denied media reports it was contemplating
defaulting on its debts, with creditors taking a 50% hit on Greek
government bonds.
Finance Minister Evangelos Venizelos said Athens was focusing on
reducing its debt levels.
“All other discussions, rumours, comments and scenarios which are
diverting our attention from this central target and Greece’s political
obligation... do not help our common European task,” he said. Also on
Friday, credit rating agency Moody’s downgraded eight Greek banks due to
concerns about Greece’s ability to pay back its debts.
Two of the Greek banks downgraded, the Emporiki Bank of Greece and
General Bank of Greece, are majority-owned by France’s Credit Agricole
and Societe Generale respectively.
Unimpressed Thursday’s market falls had sparked the G20 to announce a
commitment “to take all necessary actions to preserve the stability of
banking systems and financial markets as required”.
It said it would follow up this pledge with a “bold action plan” at
the beginning of November.
Analysts said investors were unimpressed by the announcement. “The
statement from the G20 last night may have taken the edge off the
current bitter market sentiment, but the reassurances from the finance
ministers lack substance,” said Jane Foley at Rabobank.
“Until politicians back their actions with words in respect to moving
closer to a solution to the eurozone debt crisis, markets will continue
to worry about a messy and painful outcome from the eurozone debt
crisis.”
The G20 has given little hint of what action it may take, but markets
have long been calling for a substantial increase in the eurozone’s
communal bailout fund, the European Financial Stability Facility (EFSF),
from its agreed level of 440bn euros ($596bn; £385bn).
Many investors also want the eurozone to issue bonds guaranteed by
every one of the 17-member nations - so-called eurobonds.
However, a number of policymakers, particularly those in Germany,
have resisted the idea. In July, European finance ministers proposed
making the EFSF more flexible, allowing it to buy individual government
bonds - which would bring down the cost of borrowing for heavily
indebted nations - and to offer emergency credit lines to banks.
However, the proposals have not yet been ratified. Sense of urgency
Analysts say far swifter action is needed in order to soothe investors’
jittery nerves.
“Markets work on a second-by-second basis, while politicians seem to
be working to a monthly calendar,” Jeremy Stretch from CIBC told the
BBC. UK Chancellor George Osborne also said that time was of the
essence.
“There is a far greater sense of urgency than there was three weeks
ago about the necessity for the eurozone to address its problems and
there is pressure on the eurozone from across the international
community,” he told the BBC.
He said there was a recognition that a solution needed to be found in
weeks not months, and a comprehensive solution needed to come from the
G20 leaders’ meeting in November.
The BBC’s economics editor, Stephanie Flanders, said the chancellor
was echoing comments from people outside the eurozone, who think the
Europeans missed an important opportunity to resolve the situation over
the summer.
They had the summit in July then the perception was that they all
went on holiday, leaving question marks over the markets which has now
cost them dearly, she said. |