IMF’s Lagarde warns against ‘slamming on the brakes’
By Alex Stevenson Follow @alex__stevenson
Drastic public spending consolidations like that taking place in Britain could hurt the global economic recovery, the International Monetary Fund's (IMF) managing director Christine Lagarde has said.
Her warning against "slamming on the brakes" in an article for the Financial Times newspaper could be used by Labour as support for their claims that the government's austerity drive is causing Britain's stagnant GDP growth.
Ms Lagarde, who avoided naming specific countries in her article, also said that a "short-term focus would be wrong".
"The amount of short-run policy space differs by country," she wrote.
"High debt countries under market pressure have little leeway, and must continue fiscal consolidation. But in others there is scope for a slower pace of consolidation combined with policies to support growth."
She called for a "dual focus" on medium-term consolidation and short-term support for growth and jobs, which mutually reinforce rather than undermine each other.
"Debt-reduction strategies must be based on concrete and substantive commitments – not just words – but the impact on the economy can be set with a delay," Ms Lagarde added.
"Policy actions can focus on areas where the pressure is mounting tomorrow, but have little effect on demand today – such as reforming entitlements or restructuring the tax system.
"At the same time, short-term measures must be supportive of growth, yet economical in terms of the impact on fiscal sustainability, and can include policies supporting employment creation, advancing planned infrastructure and easing adjustment in housing markets."
In Europe attention is on the ongoing eurozone crisis.
French president Nicolas Sarkozy and German chancellor Angela Merkel are meeting today to discuss proposals to introduce eurobonds, which would hike German interest rates but potentially stabilise the struggling currency.
