IMF chief critical of 'piecemeal' EU efforts to fix crisis

 

THERE IS a risk of complacency among governments and policymakers in their handling of the reform of the world’s financial system, according to the head of the International Monetary Fund.

Speaking at the opening of the annual spring meeting of the IMF and World Bank yesterday in Washington DC, Dominique Strauss-Kahn said that, in Europe particularly, more needed to be done to deal with the crisis.

“We are arguing here in the IMF for at least six months that there is a need for a more comprehensive plan on the European side. The piecemeal approach, dealing with interest rates one day and something else another day, is not working well,” he said.

For the euro zone countries in receipt of IMF funding, he emphasised the need to implement agreed plans, while acknowledging the difficulties that deep reforms caused for citizens.

He stressed that individual countries could not and should not act alone in dealing with the challenges. “We are now in an interconnected world which doesn’t leave room for local solutions, or a solution decided by countries without taking into account the consequences it may have on others.”

While acknowledging international co-operation on reforming and restructuring the financial system was less intense than at the “apex” of the crisis, its current level would have been undreamt of five years ago, he said.

Mr Strauss-Kahn acknowledged the improved economic conditions globally but said, “it is not the recovery we want because it is still unbalanced between countries and it is also unbalanced within countries”.

He raised a series of issues on which more action was needed internationally to “repair and reform” the financial sector. These included “some kind of recapitalisation” of European banks following forthcoming stress tests; extending regulation to the “shadow banking sector”; implementing macroprudential supervision; dealing with cross-border banking resolution; and completing work on the taxation of the financial sector.

Mr Strauss-Kahn highlighted the jobless nature of the global economic recovery, saying that “[economic] growth is not enough” to ensure increased employment.

“Jobs, jobs, jobs” should be the focus of governments in both the developed and developing world. Without greater effort, he warned of “life sentences” for young people who are out work.