Unchecked spending cuts will hurt growth, Lagarde warns
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Economic growth could be strangled if countries simply implement across-the-board spending cuts to sort out their public debt problems, the head of the International Monetary Fund (IMF) has warned.
Christine Lagarde
Speaking at the World Economic Forum in Davos over the weekend, Christine Lagarde, managing director of the IMF, claimed there is no “one-size fits all solution” in the debt crises blighting some of the world’s major economies.
Lagarde said countries should avoid trying to slash their debts too quickly as this could hamper their growth and recommended that spending cuts are tailored to their individual circumstances.
“We are not suggesting that there should be fiscal consolidation across the board, without differentiation and without specific treatment adjusted to the specificities of the country,” she told a panel discussion.
The managing director also called on eurozone members to build a “clear, simple, firewall” that will help to stop the debt crisis from spreading further and restore the market’s confidence in the bloc.
“No one is immune in the current situation. It’s not just a eurozone crisis. It’s a crisis that could have collateral effects, spillover effects around the world,” Lagarde added.
George Osborne, the UK chancellor, echoed this sentiment during the panel discussion. Osborne applauded the eurozone’s progress over the past two years, but highlighted the failure to resolve Greece’s problems as evidence that the debt crisis is far from over.
“The danger here is that the tail wags the dog throughout this crisis … the inability to deal with the specific problems in the periphery causes shockwaves across the whole European economy and the world economy,” the chancellor warned.
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