Growth, not austerity, key to ending the crisis: Lagarde
The economic recovery is a 'three-speed' one; policies to boost growth everywhere are needed, IMF Managing Director Christine Lagarde says
The world economy has gone through the worst stages of the crisis and is now recovering at an uneven pace, with some countries growing strongly, others being on the mend and others still mired in recession, Lagarde said during a news conference at the opening of the International Monetary Fund's spring meetings.
"The three-speed recovery is not the healthiest we can think of. What we need is a full-speed global economy," Lagarde said.
She said that while monetary easing was important for the eurozone to be able to get out of recession, the smooth transmission of monetary policy to ensure that lower interest rates are translated into lower borrowing rates for small and medium size companies was even more important.
"Of all the major central banks in the world, the ECB is the only one who clearly still has room for maneuver. It is up to them to decide ... when to lower interest rates," Lagarde said.
"There has to be enough strengthening as well as restructuring, if need be, of the banks within the eurozone in particular, as well as the right influx from the top at the right moment, and that should finally unleash the credit that is needed to rebalance the economy."
Lagarde said that Spain should be more flexible in its fiscal adjustment as unemployment was very high and the recession there was severe.
"We believe that considering the situation of the country and the 25% unemployment.... we do not see a need to do upfront, heavy-duty fiscal consolidation as initially planned. That country needs more time to plan for fiscal consolidation," she said.
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Last year, Spain missed the 6.3% of gross domestic product target for its budget deficit agreed with the European Union, as its fiscal gap came in at around 7% of GDP.
Various media reports said Spain wanted to persuade the EU to relax its deficit target for this year to around 6% of GDP from an initial 4.5%.
Famous economist Nouriel Roubini told a conference ahead of the IMF spring meetings that austerity was making things worse in the eurozone and that countries going through tough structural adjustments should be allowed more lenience when it comes to fiscal consolidation.
Emerging countries are doing well but they "face the new risk of avoiding policy excesses," Lagarde said.
She added that in low-income countries, which record the fastest rates of growth, policymakers should build on that growth with measures to boost infrastructure and address social needs for the progress to be sustainable.
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