IMF’s Lagarde says euro crisis not solved, demands pre-emptive action from ECB

Christine Lagarde, the IMF’s managing director, says it is premature to declare the eurozone crisis over

The International Monetary Fund has poured cold water over claims that the eurozone is safely recovering, calling on the European Central Bank to take pre-emptive action to alleviate the credit crunch for small business and head off the risk of deflation.

“Looking past the headlines, there are clearly signs that not all is well,” she told a forum in Brussels, highlighting the risk of a “vicious cycle” in which depressed demand and stagnant investment feed on each other.

The warning came as fresh data showed Greece’s recovery may be stalling again, with mounting risks of a relapse into recession over the winter. The Greek statistics office said industrial output had fallen 5.2pc in October, a sharp deterioration from minus 1.3pc in September.

Mrs Lagarde said mass unemployment in large parts of the eurozone is eroding jobs skills and undermining the long-term productive capacity of the economy, a process known as hysteresis.

“Can a crisis really be over when 12pc of the labor force is without a job? When unemployment among the youth is in very high double digits, reaching more than 50pc in Greece and Spain?” she said.

“Growth has not been balanced across Europe and, therefore, may not be sustainable. There are pockets of stronger growth and high employment, for example in Germany, but growth is low or declining elsewhere. Most of the demand for European goods and services comes from abroad, not from within, leaving the economy at the mercy of the ups and downs of global trade,” she said.

Full article: IMF’s Lagarde says euro crisis not solved, demands pre-emptive action from ECB (The Telegraph)

Comments are closed.