Monday, January 23, 2012

IMF's Christine Lagarde warns of '1930s moment'

23 January 2012 Last updated at 12:23 ET
IMF Christine Lagarde was speaking ahead of Wednesday's Davos summit

Global Economy

IMF chief Christine Lagarde has warned the world faces an economic spiral reminiscent of the 1930s unless action is taken on the eurozone crisis.

Ms Lagarde, speaking in Berlin, warned of a danger of rising unemployment if governments did not act together.

She said the Fund needed 500bn euros more to help sustain those countries worst hit by the eurozone crisis.

She added that Germany's economy depended on the economic health of its customers in other eurozone countries. 

Ms Lagarde, who met German Chancellor Angela Merkel, said that the eurozone needed a "larger firewall" to prevent the debt crisis spreading. 

'Downward spiral'
 
Talks between Greece and its creditors were adjourned on Friday amid Greek hopes a large chunk of its debts could be written off.

In a BBC interview, Ms Lagarde said now was the time to act in order to avoid a 1930s-style depression.

She said: "Looking at it from this perspective, 2012 must be a year of healing. But as Hippocrates put it long ago: 'Healing is a matter of time, but it is sometimes also a matter of opportunity.' 

"And today, it has to be an opportunity of our own making. Otherwise, we could easily slide into a 1930s moment.

"A moment where trust and co-operation break down and countries turn inward. A moment, ultimately, leading to a downward spiral that could engulf the entire world."

Hopes for success
 
To spur growth, she called indirectly on the European Central Bank to lower interest rate. With inflation falling sharply, "additional and timely monetary easing will be important," she said.

However, she added that there was still a chance of a resolution to the crisis. 

She said: "I remain ever hopeful. I believe we can avoid such a scenario and I say this for a simple reason: we know what must be done. 

"Although the economic outlook remains deeply worrisome, there is a way out. Now the world must find the political will, the collective will, to do what it knows must be done."

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