IMF: Global economy needs collective action now

 

Chancellor George Osborne: ''They have got weeks not months to sort it out''

IMF chief Christine Lagarde has called for countries to "act now and act together" to keep on the path to economic recovery.

"We are by no means strangers, and we are linked by a common destiny," she said at the annual meeting of the IMF and the World Bank in Washington.

"And these turbulent times must bind us ever closer together."

Ms Lagarde was speaking after another week of volatility on the world's share markets.

In Europe, the main share indexes in London, Paris and Frankfurt all fell about 4% over the week.

Meanwhile, UK Chancellor George Osborne warned time was running out to tackle the eurozone debt crisis.

Speaking in Washington, where the G20 is also gathering, Mr Osborne said European leaders had six weeks to end the crisis.

'Dark clouds'

Ms Lagarde said: "There is a path to recovery. It's narrower than it was three years ago but there is a path and we have options."

Start Quote

John Frary

That money had just gone in two or three weeks due to a very sharp downturn in a very short period of time”

End Quote John Frary from Bedfordshire has seen his retirement fund fall by £7,000 in value in four weeks

But she added: "There are dark clouds over Europe and there is huge uncertainty in the US. And with that we could risk a collapse in global demand.

"Well, so what? Let's remove the clouds and remove the uncertainty. Easier said than done, and it requires clearly a collective action.

"We are all in it together and nobody should be under any illusion that there could be a de-coupling."

Global shares had slumped on Thursday, sparked by a Federal Reserve warning late the previous day about the outlook for the US economy.

And on Friday, Greece denied media reports it was contemplating defaulting on its debts, with creditors taking a 50% hit on Greek government bonds.

Finance Minister Evangelos Venizelos said Athens was focusing on reducing its debt levels.

"All other discussions, rumours, comments and scenarios which are diverting our attention from this central target and Greece's political obligation... do not help our common European task," he said.

Also on Friday, credit rating agency Moody's downgraded eight Greek banks due to concerns about Greece's ability to pay back its debts.

Two of the Greek banks downgraded, the Emporiki Bank of Greece and General Bank of Greece, are majority-owned by France's Credit Agricole and Societe Generale respectively.

Unimpressed

Thursday's market falls had sparked the G20 to announce a commitment "to take all necessary actions to preserve the stability of banking systems and financial markets as required".

Which way now for Greece?

A maze

Make your way through the maze of Greece's debt decisions

It said it would follow up this pledge with a "bold action plan" at the beginning of November.

Analysts said investors were unimpressed by the announcement.

"The statement from the G20 last night may have taken the edge off the current bitter market sentiment, but the reassurances from the finance ministers lack substance," said Jane Foley at Rabobank.

"Until politicians back their actions with words in respect to moving closer to a solution to the eurozone debt crisis, markets will continue to worry about a messy and painful outcome from the eurozone debt crisis."

The G20 has given little hint of what action it may take, but markets have long been calling for a substantial increase in the eurozone's communal bailout fund, the European Financial Stability Facility (EFSF), from its agreed level of 440bn euros ($596bn; £385bn).

Many investors also want the eurozone to issue bonds guaranteed by every one of the 17-member nations - so-called eurobonds. However, a number of policymakers, particularly those in Germany, have resisted the idea.

In July, European finance ministers proposed making the EFSF more flexible, allowing it to buy individual government bonds - which would bring down the cost of borrowing for heavily indebted nations - and to offer emergency credit lines to banks. However, the proposals have not yet been ratified.

Sense of urgency

Analysts say far swifter action is needed in order to soothe investors' jittery nerves.

Start Quote

There still seems to be a large gap between what economists and markets say is needed - and politicians are able to provide. ”

End Quote

"Markets work on a second-by-second basis, while politicians seem to be working to a monthly calendar," Jeremy Stretch from CIBC told the BBC.

UK Chancellor George Osborne also said that time was of the essence.

"There is a far greater sense of urgency than there was three weeks ago about the necessity for the eurozone to address its problems and there is pressure on the eurozone from across the international community," he told the BBC.

He said there was a recognition that a solution needed to be found in weeks not months, and a comprehensive solution needed to come from the G20 leaders' meeting in November.

The BBC's economics editor, Stephanie Flanders, said the chancellor was echoing comments from people outside the eurozone, who think the Europeans missed an important opportunity to resolve the situation over the summer.

They had the summit in July then the perception was that they all went on holiday, leaving question marks over the markets which has now cost them dearly, she said.

The Labour leader, Ed Miliband, has called for the November G20 meeting to be brought forward so that leaders can agree a plan for growth.

Jim O'Neill, chairman of Goldman Sachs Asset Management, suggested this weekend's meeting in Washington could mark the beginning of concerted action to tackle the debt crisis in Europe which is the cause of so much stock market volatility.

"The thing that really brought the world to a better place in 2008 was genuine collective action involving both the developed and the developing world through the G20," he told the BBC.

"The fact that they're all there together in [Washington] DC this weekend should lay the framework for thoughts about quite significant actions... sometime between now or possibly at the November G20 in France."

 

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  • rate this
    0

    Comment number 175.

    When will people wake up to the fact that we cant all be rich the value on earth is only its resources the population increases only diminishes any wealth we have. Money is such a bad way to measure wealth. Why not happiness? Money does not equal happiness although this is widely believed!

  • rate this
    +1

    Comment number 174.

    Christine Lagarde seems to have forgotten her record as French trade minister, where she concentrated in expanding specific sectors of the economy. She should be telling the countries to get on and sort their own problems out, building on their own strengths. Not trying to negotiate will all and sundry, the politicisation of the EEC agreement has demonstrated that this can only lead to disaster.

  • rate this
    +1

    Comment number 173.

    " Jack Napier
    What is it about the shareholding classes that makes them think that their gambles should have some kind of government guaranteed success clause?"

    I dont expect a government guarantee. But I do not expect government vacillation and indecision coupled with loose tongues spooking the markets and destroying value in OUR pension funds and other investments. I presume you have a pension

  • rate this
    0

    Comment number 172.

    "Michael Lloyd
    The Irish voted "No", killing the EU stone dead, but they carried on regardless."

    The Irish voted No to the original proposal to change the rules of the EU but the existing rules remained in force. The Irish got the changes the wanted and then voted yes. Why is that unreasonable when 26 other states were ready to ratify the new rules?

  • rate this
    -2

    Comment number 171.

    The environment of our oceans is very important. Dropping old satellites in this dellicate ecology presents a lethal rubble on our planet. The IMF should encourage clean-up and other methods to destroy highly technical equipment.

  • rate this
    0

    Comment number 170.

    More power to her elbow....!

    Let's rebuild quickly and continue spending on "cheap" imported goods and services, while under-paying our own workers or (worse still) paying them not to work at all.

    Give it a year or two, and we'll be back here again....

    See you next time around, Ms Lagarde!

  • rate this
    +2

    Comment number 169.

    The biggest threat to the world ecomony are the lies being preached!The bankrupt ideas of the financial institutions have caused havoc throughout the world for years.What world leaders need to say is the TRUTH! not feeble excuses which let the banks off the hook with an endless supply of our money.The system is broken. Rich and poor alike will suffer but its the rich who will suffer most!!Tough!

  • rate this
    +1

    Comment number 168.

    Yes, collective actions needed, but not those that turn matters from bad to worse. An economic protocol is needed to bring every economy back to function according to the “Laws of Economics”.

  • rate this
    +1

    Comment number 167.

    If only the EU followed its own rules, it would no longer exist and much of this chaos would have been avoided. The Irish voted "No", killing the EU stone dead, but they carried on regardless. Now the chickens are coming home to roost. Maybe there is such a thing as karma after all. Too much "wealth creation" today depends on gambling and on second-guessing someone else - it's bound to fail.

  • rate this
    +3

    Comment number 166.

    All this Frenchwoman wants us to do is spend more money we haven't got

    It's like Gordon Brown all over again but he was Scottish.

    Let us be honest with ourselves. The West needs to adjust it spending and standard of living to the new world order & our circumstances.

    At some stage we have to face the grim reality we are not as rich as we were. We cannot keep kidding ourselves.

  • rate this
    +3

    Comment number 165.

    Reading between the lines laggard wants the West to borrow more and spend more on Chinese goods whilst the Chinese lend to the West to do this.

    This sounds like much of the same that has got us into the current mess.

  • rate this
    +3

    Comment number 164.

    80.Jason Mead
    6 Hours ago
    As my investments have lost a lot of money in recent weeks due to the indecision of European leaders, can I sue them for my loss?

    ....

    No, for the same reason you can't sue the bookies if you lose either.

    What is it about the shareholding classes that makes them think that their gambles should have some kind of government guaranteed success clause?

  • rate this
    0

    Comment number 163.

    @160. shgp13
    ...I am appalled by the behavior of both elected and unelected persona from the EU. Have they no idea about democracy?.

    I'm no advocate of the UKIP party, but Nigel Farage of UKIP has been saying exactly that for years. And we are attempting to spread this same kind of capitalist autocracy to the rest of the world. We should all reject this lack of democracy and trustworthiness.

  • rate this
    -1

    Comment number 162.

    Fact is, the world economy is hanging over an abyss, growth in India & even China mask other serious economic & social problems in those nations, which the main one is inflation. Yes many may be benefitting from economic growth but many & increasing numbers are suffering attrociously due to inflation.

    If Greece falls, its consequential effects will also be experienced by the poor in ALL nations

  • rate this
    +1

    Comment number 161.

    The whole lot of our politicians are useless. Fiddling whilst Rome burns and letting big businesses do what they want. Never forget Cadbury- sold to Kraft using borrowed money. Where did a good chunk of the money come from? RBS, owned mostly by British taxpayers. Total disgrace, no wonder we don't own or make anything anymore.

  • rate this
    +2

    Comment number 160.

    I have just read on the BBC News website that the EU will not permit Greece to leave the Euro Zone.... just who do the EU think they are?
    I am appalled by the behavior of both elected and unelected persona from the EU. Have they no idea about democracy?

  • rate this
    +2

    Comment number 159.

    The reaction to the banking crisis is relatively a dangerously deteriorated kidney patient receiving an emergency dialysis machine which was soon found to be faulty.
    As well as the fault continueing damage & deterioration the side effect is also to weaken the heart.
    We are very nearly at the point where a transplant or new dialysis machine will not be effective due to excessive heart damage.

  • rate this
    -3

    Comment number 158.

    Think Gold speculation is adding to the problem. Some people are actually selling Jewelry, whilst others are cheerfully buying coins and hiding them in the freezer.
    Speculation is pushing up the price of gold and driving down stocks. Further once you start it gets addictive so people will add to gold stocks rather than spend money.
    Tax speculative gold investment. It's greedy & antisocial.

  • rate this
    0

    Comment number 157.

    The only real way forward is for huge Euro quantative easing, devaluation of currency & nations wealth.
    Each nation should receive a set percentage/share, set at enough to pay down/off debts + reducing debt repayments thus enabling increased capital expenditure. Even Germany should receive its equal share which it can use to minimise/reduce consequential QE inflation

  • rate this
    +2

    Comment number 156.

    I Look forward to the EU clubs currency dropping like a stone. Maybe the club EU will then disband and we can escape from the debacle that it is.
    With modern technology in Banking we do not need to have a common curreny which has frankly ruined most economies that have joined it.
    We can then run our country ourselves again and perhaps be better off.
    Live within your means folks, not rocket science

 

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