22/09 16h41
by Paul Handley – WASHINGTON, USA (AFP)
Heads of the World Bank and IMF on Thursday warned that Europe and the US needed to get control of their deteriorating economic crises or risk “suffocating” the global economy.
Opening the annual meetings of the two key global lenders, they also warned poorer countries to get their houses in order to be able to endure the fallout from the advanced-economy crises.
“Europe, Japan, and the United States must act to address their big economic problems before they become bigger problems for the rest of the world … Not to do so is irresponsible,” World Bank president Robert Zoellick said.
“Some developed country officials sound like their woes are just their business. Not so,” he added.
The primary problem dragging down global growth, the managing director of the International Monetary Fund, Christine Lagarde said, is the heavy government and household debts and capital-weak banks in the advanced economies.
This all “could actually suffocate the recovery,” she said.
Calling the world “in a danger zone,” Zoellick said he still believed that a return to recession in the US, Europe and Japan is unlikely.
“But my confidence in that belief is being eroded daily by the steady drip of difficult economic news.”
“In 2008 many people said they did not see the turbulence coming. Leaders have no such excuse now,” he added.
To get past the crisis of massive debt and deficits, Lagarde said that advanced countries needed to prioritize balancing their budgets.
“Time is of the essence, not just for the United States but for all advanced economies.”
But she added that the United States, at least, should not slice its deficits so sharply as to kill off economic growth.
“Consolidating too fast, too heavy for some countries, is going to be harmful for potential growth.”
“Some countries can accommodate growth in the short term … clearly, the United States is one that comes to mind right away.”
“It’s a balancing act,” she added.
Lagarde stressed a need for Europe’s banks to strengthen their capital bases so they are in a position to power growth.
“It is critical that to fuel growth, banks be in a position to finance the economy.”
Lagarde also urged emerging economies to make their own contribution to strengthening the global economy through “rebalancing” — moving their cash-rich economies more toward growth based on domestic consumption and, for those with strong trade and investment surpluses, giving more room to deficit countries.
“That is not moving fast enough in the emerging markets,” she said.
Meanwhile the leaders of six other major economies added to the pressure on the US and EU Thursday.
“Eurozone governments and institutions must act swiftly to resolve the euro crisis and all European economies must confront the debt overhang to prevent contagion to the wider global economy,” the leaders from Australia, Britain, Canada, Indonesia, Mexico and South Korea said in a joint letter.
The eurozone in particular “must look at all possible options to ensure long-term stability in the world’s second-largest international currency,” the six said.
They also called on the United States to restore economic confidence and urged a strengthening of banking systems.
