For U.S., Europe, ‘a long journey’ to economic rebound
By Howard Schneider,
The United States and Europe face several years of economic pain to become competitive in a global economy where growth and financial clout are shifting to Asia and other emerging nations, Tharman Shanmugaratnam, Singapore’s finance minister, said at the close of International Monetary Fund meetings that were dominated by lingering concerns over Europe.
Shanmugaratnam, who chairs the IMF’s governing body, said it was only recently that he felt political leaders in the developed nations had accepted the depth of their problems — be it unsustainable levels of government debt or unrealistic public expectations about social spending, wages and other issues.
“There have been very strong expectations set for more of the same, and it is going to take political courage to shift gears,” said Shanmugaratnam, who, as the principal financial official of a country that has symbolized Asia’s economic rise, is considered one of the developing world’s star economic managers.
That means several more years of trying to curb government spending while simultaneously overhauling economies, restructuring labor rules and benefits and taking other politically difficult steps that the IMF says are needed to revive economic growth.
Without that revival, he said, developed-world governments will never tame the debt problems that have driven three euro-zone nations to seek bailouts from the IMF in recent years, are currently pressuring Italy and Spain, and need to be addressed in the United States as well.
“It is going to be a long journey,” he said. “If we don’t get back to real growth, fiscal sustainability is not possible.”
The spring meetings of the fund were a low-key respite to previous gatherings, which over the past few years have been dominated by the global crisis that followed the 2008 collapse of Lehman Brothers, the teetering nature of the euro currency zone and the bailouts of Greece, Ireland and Portugal.
Fund economists kicked off the week’s discussion by boosting their forecast for world economic growth. The U.S. economy seemed to be gaining strength, they said, and Europe should begin exiting a mild recession.
Still, the risk of a possibly severe setback is considered large and prompted IMF Managing Director Christine Lagarde to push through a new pool of money, worth about $430 billion, that the fund could use to help countries if the world economy worsens. Though Europe is still considered the likely epicenter of any major meltdown, the new money is not dedicated for use in the euro zone and would be loaned only under the usual set of conditions established by the IMF, Lagarde said.
“It’s nice to have a big umbrella,” Lagarde said of the money raised through pledges from Europe, Japan, South Korea and others, though not the United States. By not contributing, the United States is in the unusual position of having the largest share of votes on the IMF board while providing the second-largest commitment of funds, behind Japan.
The Obama administration argues that the IMF has enough money to respond to any likely problems, that more could be raised quickly if necessary and that the United States has taken other steps to help Europe, such as ensuring a supply of dollars as needed to the European Central Bank.