IMF presses Europe to contain debt crisis

Europe was pressed by other world powers on Saturday to take strong measures to fix its debt-heavy economy and restore growth to a level that would lift the cloud hanging over the fragile global recovery.

A day after top economies agreed to lend more money to the International Monetary Fund to help contain Europe’s debt crisis, the IMF’s governing panel said the eurozone must cut government debt burdens, make bold economic reforms and stabilize its financial systems to restore growth.

Debt problems will resurface unless these steps are taken, the head of the IMF’s governing panel, Singapore Finance Minister Tharman Shanmugaratnam, warned.

“What was really critical in all our minds was to get back to normal growth over the medium term and preferably sooner rather than later, in other words within two to three years,” he told a news conference.

“If we don’t get back to normal growth, if we don’t get GDP back to its potential levels, than fiscal sustainability is not possible either,” he warned.

In its policy statement the IMF panel warned against overly harsh budget cuts that could have negative consequences.

“In advanced economies further actions are needed in many countries to achieve credible fiscal consolidation and government debt reduction, while avoiding excessively contractionary fiscal policies,” it said.

The United States also piled on pressure.

“The success of the next phase of the crisis response will hinge on Europe’s willingness and ability, together with the European Central Bank to apply its tools … flexibly and aggressively to support countries as they implement reforms,” US Treasury Secretary Timothy Geithner told the IMF’s steering committee.

The committee called upon central banks in advanced economies to retain their accommodative monetary policies, as long as growth remains weak and inflationary expectations under control.

ECB officials resisted pressure at the meetings in Washington to do more to help the eurozone economy, which is at risk of a recession. The IMF last week said the ECB should cut interest rates further from their current level of 1%.

US and Japan under spotlight
Europe was not the only economy under heightened scrutiny for excessive budget deficits that if left unaddressed could threaten global growth.

“The United States and Japan in particular need to tackle their public deficits and debt,” German Finance Minister Wolfgang Schaeuble told his fellow finance ministers.

“This requires a credible medium-term strategy. We understand the political constraints but there is no way around it and there is urgency,” Schaeuble said, echoing the IMF’s recommendations.

Europe, however, presents the most urgent challenge and was the only economy singled out for policy advice by the IMF panel.

Japan’s finance minister, Jun Azumi, said strengthening the IMF’s war chest for crisis fighting only buys Europe time. The recent rises in European sovereign debt yields indicate the debt problems continue to pose “considerable” risk to the global economy, he said, as he warned the European policymakers must remain vigilant in their actions.

“Policymakers of individual countries should avoid slipping into complacency and exploit the temporary breathing space that was acquired by the efforts made so far,” Azumi said.

Investors are more concerned about the situation in Europe than elsewhere. Spanish and Italian bonds faced pressure on Friday. The yield on Spain’s 10-year bond topped 6% before retreating.

The IMF committee called on members to ratify “expeditiously” a 2010 plan to increase the representation on emerging economies on the IMF’s executive board to better reflect their growing clout in the world economy. Brazil had pressed this point as essential before it agreed to more IMF funding.

The voting reforms are unlikely to get approved by the IMF’s October meetings unless Washington, facing a bitter presidential election race, can persuade Congress to agree.

“I did not hear any clear announcement from the US that they will be able to deliver before the annual meetings,” Schaeuble said, adding that Europe will have agreed by then.

That would add to tensions between the United States, which had insisted upon the reforms, and emerging markets. – Reuters

Advertisting

ANC and the state step back from taking action against...

Despite alleged abuses of power and people’s trust, the ANC appears to have abandoned plans to reform the controversial Ingonyama Trust Board

Mkhwebane moves to halt ‘grossly unfair’ impeachment process

Mkhwebane moves to halt ‘grossly unfair’ impeachment process

Chaos theory: How Jürgen Klopp has harnessed the unpredictable

The Liverpool manager has his side playing unstoppable football but it’s the attention to detail off the field that has bred the success

Miners speak out against Sibanye

Not a year into buying Lonmin, Sibanye is accused of mistreating the mineworkers who were injured eight years ago during the Marikana massacre. But the platinum giant says it is a miscommunication. Athandiwe Saba and Paul Botes visit Marikana to find out the truth
Advertising

Press Releases

Wellcome Trust award goes to UKZN mental health champion

Dr Andr? J van Rensburg, a senior researcher in UKZN's Centre for Rural Health, received the Wellcome Trust Discretionary Award.

MTN gears up to deliver improved customer service

On 28 January, the first batch of MTN contract customers will be migrated onto the new customer service platform.

Request for expression of interest on analysis of quality and outcome indicators for regional and district hospitals in Lesotho

Introduction The Ministry of Health of Lesotho with the support of the World Bank funded Nutrition and Health Systems Strengthening...

MiX Telematics enhances in-vehicle video camera solution

The company has launched the gold MiX Vision Bureau Service, which includes driver-coaching tools to ensure risky driver behaviour can be addressed proactively and efficiently.

Boosting safety for cargo and drivers

The use of a telematics system for fleet vehicles has proved to be an important tool in helping to drive down costs and improve efficiency, says MiX Telematics Africa.

Silencing the guns and firearms amnesty

Silencing the guns and firearms amnesty

Gender-based violence is an affront to our humanity

Gender-based violence is an affront to our humanity

UK-Africa investment summit 2020: Think Africa Invest SA

UK-Africa investment summit 2020: Think Africa Invest SA