Sovereign Debt Risks-IMF's Christine Lagarde

Independent Films, Women, Politics

At the Council on Foreign Relations in New York City, IMF head Christine Lagarde spoke of the three challenges currently confronting the global economy - sovereign debt, growth, and social instability. She stressed that these challenges are intimately intertwined, and only by solving all three can the world unlock strong, stable, and balanced global growth.

On sovereign debt, Lagarde said fiscal problems in the periphery of Europe had revealed the risks posed by an incomplete economic and monetary union. She noted that eurozone leaders had reached an important agreement, including a commitment to finance program countries until they can regain market access, as long as those programs are implemented effectively. This means that for Greece and other program countries the main priority is implementation.

“For the first time I saw Euro area member leaders actually decide to come together, to close ranks, and to put money where their mouth was. So what’s different compared to a year ago. Compared to a year ago, not only did they address this particular issue of Greece by significantly extending the maturities of the loans, by slashing the interest rate, but they also made the general commitment that for any country under program, under this joint program that is sponsored by both the European Commission, funded by the Euro area members, and the IMF, under surveillance of the ECB for any of those countries under program, provided that they have delivered under the program and that is obviously an important condition for as long as that delivery is obvious, the other Euro area members will continue to finance until there is a return to the market,” Lagarde said.

Similarly, Lagarde said she hoped for bold fiscal action in the United States.

“I hope that this courageous move will be followed as well in the United States and that fiscal action will be taken as rapidly as possible. Unfortunately, there is one thing that we cannot change and that is the passing of time. And the clock is irremediably ticking and people have to really try to find the appropriate solution. I’m not going to comment on one plan or the other it is not for me to say, but there has to be sufficient plans in order to address the issue of sovereign debt, of the debt ceiling, because frankly to have a default or to have a significant downgrading of the U.S. would be a very, very serious event, not for the United States alone but for the global economy at large, because the consequences would be far reaching--it would not stop at the frontiers of the United States,” Lagarde said.

On growth, Lagarde said the global recovery is set to post reasonable near-term growth but remains unbalanced, with signs of overheating in emerging economies, surging commodity prices hitting low-income countries, and deep and long-lasting crisis effects in advanced economies.

“Boosting growth in these economies is no small task. And the goal can’t simply be any growth we need the right kind of growth, that creates jobs and lifts people across the socioeconomic spectrum,” Lagarde said.

On social instability, Lagarde said events in the Middle East and North Africa had shown how socially imbalanced growth contributed to the political upheaval. In many emerging and developing economies, rising commodity prices were exacerbating social problems associated with high joblessness.

“Social problems are of major concern to advanced economies too,” Lagarde stated. “The young in particular are having a hard time finding work with potentially lifelong implications in terms of employability and income. At the same time, the older generations are fighting to protect their health and pension benefits.”

These trends raised the prospect of intergenerational conflict, Lagarde observed. “This is why focusing on the right kind of growth is so important.”

Directors:

• Muhamed Sacirbey (UNTV-IMF)

Producers:

• Susan Sacirbey (UNTV-IMF)