Germany firm on Greek leniency
The IMF's change of tune on the speed of budget cuts stems from research it released this week showing that aggressive fiscal consolidation crimps growth more sharply than previously thought.
It also reflects a desire by Ms Lagarde, a former French finance minister, to demonstrate the IMF is willing to get tough with Europe. Big emerging economies, who have helped top up the IMF's crisis-fighting coffers, had worried about the fund's independence.
"Let us not delude ourselves: without growth, the future of the global economy is in jeopardy," she said. "One lesson is clear from history: reducing public debt is incredibly difficult without growth. High debt, in turn, makes it harder to get growth.”
Nobel prize-winning economist Paul Krugman called the IMF's new research, contained in its latest World Economic Outlook, "an extensively documented exercise in hand-wringing".
"Kudos to the fund for having the courage to say this, which means bucking some powerful players as well as admitting that its own analysis was flawed," Mr Krugman wrote on his blog.
While the IMF has advocated a slower approach to debt reduction, it urged swifter policy action, both in Europe and the United States, to remove economic uncertainty and help lift anaemic global economic growth.
The IMF meetings officially started on a regal note, with Japan's crown prince in attendance. Ms Lagarde followed with some blunt warnings for the Fund's 188 member countries that they were losing momentum in reforming the global financial system, a running message from the IMF in the build up to the meeting.
She said it was not much safer than in 2008, when the collapse of Lehman Brothers triggered a global meltdown.
The IMF lowered its global growth forecast this week for the second time since April. Host Japan offered another reminder on Friday that its own economy was losing steam as the government downgraded its forecast for a third straight month.
In Europe, the IMF wants to see more progress toward promised reforms that would create a tighter fiscal and banking union. In the United States, the IMF has sounded the alarm over the "fiscal cliff" of automatic spending cuts and tax increases that take effect early next year unless Congress acts.
European officials insist they are on track to deliver reforms, and want to see closer scrutiny of the US fiscal issues instead. US Treasury Secretary Timothy Geithner said Washington has a window of opportunity to address the fiscal cliff after the November 6th presidential election.
Both topics are on the agenda, along with the IMF's own internal reform efforts, which have stalled.
The Fund was supposed to have completed by the Tokyo meetings a set of voting reforms that would give fast-growing emerging markets greater say in the international lender and vault China to the third spot.
But US presidential politics got in the way. The Obama administration is reluctant to seek congressional approval for additional IMF funding when the budget deficit is such a hot-button election issue. Without US support, the IMF reforms lack sufficient votes to pass.
Reuters
