Christine Lagarde, the International Monetary Fund’s managing director, was talking on Tuesday in Berlin about the obvious economic challenges in 2012, and a possible policy path for global cooperation to restore confidence and growth. Readers from around the peripheral European Monetary Union zone have convinced The Corner that Ms Lagarde’s words have achieved quite an echo among member states currently undergoing net austerity pressures. These are some of the most celebrated extracts:
“…in the economic outlook that the IMF will release tomorrow [today Wednesday], we will lower growth forecasts for most parts of the world… Capital flows to emerging markets have already dropped off, and growth is expected to slow even in the most vibrant parts of the world economy. Low-income countries are especially vulnerable. Yet before we indulge in yet another bout of collective pessimism…
“Put simply, policymakers let an old wound fester, and in doing so made the situation worse.
“With the euro area economy slowing sharply, inflation is already declining and we see a sizable risk that it will fall well below target next year, raising debt burdens and further hurting growth. Additional and timely monetary easing will be important to reduce such risks.
“On fiscal policy, resorting to across-the-board, across-the continent, budgetary cuts will only add to recessionary pressures. Yes, several countries have no choice but to tighten public finances, sharply and quickly. But this is not true everywhere. There is a large core where fiscal adjustment can be more gradual.
“…we need a larger firewall. Without it, countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal financing costs. This would have disastrous implications for systemic stability.
“The euro area also needs greater fiscal integration… A number of financing options are available to support such risk sharing, including the creation of euro area bonds or bills or, as proposed by the German Council of Economic Advisors, a debt redemption fund.”