Lagarde warns major economies of recession

September 15, 2011

The ability of the world’s major economies to avoid renewed recession is “much narrower than before, and getting narrower,” International Monetary Fund Managing Director Christine Lagarde warned Thursday.

The crisis over government debt and the weak financial system in Europe, political paralysis over public spending in the United States and other problems “are feeding negatively on each other, fueling a crisis of confidence and holding back demand, investment and job creation,” Lagarde said in a speech in Washington ahead of next week’s IMF annual meetings.

“This vicious cycle is gaining momentum, and, frankly, it has been exacerbated by policy uncertainty and political lack of resolve,” said Lagarde, who as the former French finance minister is a key player in the clique of European leaders she is now criticizing.

Her comments come as her former colleagues debate their next steps in a crisis they have more than once claimed to have resolved. Greece is again slipping close to default, and there are persistent worries that Europe’s financial system is much weaker than regional officials claim.

The IMF, meanwhile, has called for developed countries to perform a difficult balancing act — convincing markets that they are on a path to more balanced budgets without cutting so much in the short term that it damages growth.

The task is proving difficult in countries like Greece, where deep cuts have driven the economy further into recession. Other nations, such as Germany and France, however, have also reduced government stimulus programs.

Some nations “are probably pushing too hard today and could slow down a bit,” Lagarde said, without naming names.

The address, sponsored by the Woodrow Wilson Center, is her first major speech in Washington since taking over for former IMF chief executive Dominique Strauss-Kahn in July.

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