Lagarde urges unified action against Europe crisis

AP News
Posted: Sep 15, 2011 11:04 AM
Lagarde urges unified action against Europe crisis

The head of the International Monetary Fund called Thursday for bold and collective action to combat a slowing global economy and a worsening European debt crisis.

IMF Managing Director Christine Lagarde also said she welcomed President Barack Obama's U.S. job-creation plan in light of the unemployment crisis in the United States.

Lagarde will preside at her first annual meeting of the 187-nation lending institution next week. A former French finance minister, she took over at the IMF in June, succeeding Dominique Strauss-Kahn, who resigned in May to fight attempted rape charges. The charges were later dismissed.

"We are certainly living through times of great economic anxiety," Lagarde said in an address at the Woodrow Wilson Center. Her speech was billed as a preview of the issues the IMF will address at meetings in Washington next week.

"Exactly three years after the collapse of Lehman Brothers, the economic skies look troubled and turbulent as global activity slows and downside risks increase," Lagarde said. "Without collective, bold action, there is a real risk that the major economies slip back instead of moving forward."

Lagarde said that heavy debt loads were "knocking the wind out of the recovery."

"Weak growth and weak balance sheets _ of governments, financial institutions and households _ are feeding negatively on each other, fueling a crisis of confidence and holding back demand, investment and job creation," she said.

She called this a vicious cycle that's gaining momentum, hastened by "policy indecisions and political dysfunction."

Lagarde said Obama's job-creation program must coincide with a credible plan to shrink the federal budget deficits in coming years.

For Europe, Lagarde said nations with huge debt burdens must get control of government spending. And she said banks need to boost their capital, the resource a financial institution uses to deal with bad loans.

Lagarde's comments followed critical remarks on Wednesday by World Bank President Robert Zoellick. He faulted the 17 nations that share the euro currency for failing to take tough actions to prevent the debt crisis in Europe.

Zoellick said that the euro-currency nations created a shared currency without ensuring that it would work. He said they should have first considered those nations that couldn't compete in global trading markets and those that are burdened by debt.

Fears that Greece is headed for a default on its debt have roiled global financial markets. A Greek bankruptcy could destabilize other financially troubled European countries, such as Portugal, Ireland, Spain and Italy.

It would also be a blow to many European banks, which are large holders of Greek government bonds. Moody's on Wednesday downgraded the credit ratings of two French banks, Societe Generale and Credit Agricole.