Lagarde warns of 'major world economic crisis'


Failure to find a solution to the US debt-ceiling debate and matters in Europe will result in a “major world economic crisis”, International Monetary Fund managing director Christine Lagarde has said.

Without a resolution, there will be a crisis “due to the size of the economies of these two and their relationship with other countries in terms of trade and investment”, she told reporters in the Malawian capital, Lilongwe, yesterday.

While the US Congress approved a deal to avoid raising taxes on most Americans in the so-called fiscal cliff, policymakers need to agree on raising the $16.4 trillion (€12.54 trillion) debt ceiling, which it reached on December 31st, according to the Treasury department.

Extraordinary measures the agency is taking will be exhausted as early as mid-February.

In Europe, growth has weakened as a crisis over debt levels among some member nations continued into a third year.

The US and European issues will affect developing countries including African nations, which also face risks from rising food prices, Ms Lagarde said. – (Bloomberg)