Aug. 27, 2011, 4:40 p.m. EDT
Global recovery in dangerous phase: IMF’s Lagarde
Europe must aid banks, U.S. must aid homeowners, she says
By Greg Robb, MarketWatch
IMF managing director Christine Lagarde
JACKSON HOLE, Wyo. (MarketWatch) — The U.S. and the euro-zone must take radical steps to get their economies and the global recovery out of the “dangerous phase,” Christine Lagarde, the new chief of the International Monetary Fund, said Saturday.
“The stakes are clear: we risk seeing the fragile recovery derailed. So we must act now,” Lagarde said in remarks to Federal Reserve officials and other economists gathered for the Fed’s annual summer retreat in Jackson Hole, Wyo.
Lagarde said that Europe must come to the aid of its struggling banking sector and should consider using its European Financial Stability Facility to inject money into capital-starved banks.
“[European] banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion,” Lagarde said.
Lagarde said the financial crisis has exposed serious flaws in the architecture of the euro zone that must be addressed.
“Europe must recommit credibly to a common vision, and it needs to be built on solid foundations — including, for example, fiscal rules that actually work,” Lagarde said.
In the U.S., Lagarde said that the Obama administration and Congress must consider funding a program to help to struggling homeowners to halt “the downward spiral of foreclosures, falling house prices and deteriorating household spending.”
“This could involve more aggressive principal reduction programs for homeowners, stronger intervention by the government housing finance agencies, or steps to help homeowners take advantage of the low interest-rate environment,” Lagarde said.
Lagarde said that Congress must find a way to reduce long-term unemployment at the same time that it looks for agreement on a long-term deficit reduction plan.
A job plan and long-term sustainable fiscal policy are compatible, she noted.
Full story: http://www.marketwatch.com/story/global-recovery-in-dangerous-phase-imfs-lagarde-2011-08-27
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