LAGARDE: GIVE ANOTHER TRILLION TO THE BANKS!
CHRISTINE LAGARDE
Lagarde Says Europe Must Boost Firewall
By IAN TALLEY, from The Wall Street Journal
The global economy faces a depression-era collapse in demand if Europe doesn’t quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the International Monetary Fund warned Monday.
“It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand,” IMF Managing Director Christine Lagarde said in prepared remarks before the German Council of Foreign Affairs in Berlin. “A moment, ultimately, leading to a downward spiral that could engulf the entire world,” she said.
Last year, “policy makers let an old wound fester, and in doing so made the situation worse,” she said, speaking ahead of a euro-area finance ministers’ meeting in Brussels Tuesday.
Ms. Lagarde said unless euro-zone leaders urgently build a bigger emergency bailout fund, two of the euro zone’s largest economies, Italy and Spain, risked insolvency as the cost of financing their debt spikes upward. Economists said failures in the two economies could spark a global financial and economic meltdown, and IMF staff are urging Europe to at least double the size of their firewall to around €1 trillion.
Insolvency in those two nations “would have disastrous implications for systemic stability,” she said.
“Adding substantial real resources to what is currently available by folding the European Financial Stability Fund into the European Stability Mechanism, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly,” she said.
Ms. Lagarde said it’s also essential the European Central Bank fills the gap before leaders can build a bigger firewall, continuing to provide liquidity to stabilize banks funding and sovereign debt. Analysts say that, based on its average weekly bond purchases, the ECB could cover more than €1 trillion in ailing countries’ bonds in the year.
In the face of strong pressure from the U.S. and the IMF, Germany and some other northern European nations have been resistant to bulking up the public emergency fund, fearing it may prevent further fiscal belt-tightening in the weak Mediterranean economies. There’s also political resistance to paying more for the bailouts than already doled out.
“The euro and Europe…is the answer to the darkest chapter in our history and it’s also our life insurance in times of globalization,” said Guido Westerwelle in Washington, D.C., after meeting with Ms. Lagarde and the U.S. Treasury Secretary.
Ms. Lagarde is also seeking to boost the IMF’s lending resources by more than $500 billion to a reserve pool well over $1 trillion, including roughly $200 billion promised by Europe. Boosting IMF financing will be one of the highest priorities for the G-20 finance ministers’ meeting in Mexico City next month. While the U.S. has said it won’t contribute, China, Japan and Brazil have indicated their open to funneling cash to the IMF if Europe is more proactive in dousing its debt fires.
“The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of ‘innocent bystanders’ infected by contagion anywhere in the world,” Ms. Lagarde said.
Given the looming downside risks created by the European debt crisis, the IMF chief said the IMF is lowering its growth forecasts for most parts of the world, even in the emerging markets that have helped drive economic expansion such as Asia and Latin America.
“Even these lower forecasts assume a constructive policy path that is by no means assured,” she said. The IMF is due Tuesday to release updates to its World Economic Outlook, Fiscal Monitor and Global Financial Stability Report.
In Europe, Ms. Lagarde said the IMF sees a “sizable risk” that inflation will fall well below target next year, raising debt burdens and further hurting growth. Thus, additional and timely monetary easing will be important to reduce such risks, she said.
As part of the region’s integration, the IMF chief said monetary union needs to be supported by financial integration through unified supervision, a single bank resolution authority and a single deposit insurance fund. She also said Europe could finance itself through euro bonds, bills or a debt redemption fund.
“Political agreement on a joint bond to underpin risk-sharing would help convince markets of the future viability of European economic and monetary union,” she said.
Dr. Pinna says:
LaGarde is giving the world both true and false statements.
Yes, it is true, the world is facing a 1930’s like depression.
No, it is not true that printing trillions of Euro’s will prevent it.
Printing this much money will allow the banks and the governments to pay off their debts, but that money must flow into the world economy and cause world wide inflation.
Add a trillion euros to the euros being traded on the foreign currency exchange markets and the euro will drop. Exporters selling goods, like China, will want more euros for their goods.
This is simple math and we should not be surprised when it happens.
Gold is rising as this is happening….
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