Noting the deep ties linking the United States and the global economy, especially Europe, Ms Lagarde said: "If the European economy falters, the American recovery and American jobs would be in jeopardy. So America has a large stake in how Europe fares - and how the world fares."
"These are trying times. The global economy is trying to emerge from the deepest and most painful economic crisis since the Great Depression. At the same time, the world is growing smaller and more interconnected by the day, meaning that economic disruption in one country can touch people all across the globe", she said in a speech to the Associated Press Annual Meeting in Washington, D.C.
The global economy is looking better, but the recovery is still very fragile, she said and called on policymakers to "use the breathing space to finish the job". In this context, boosting growth means using monetary policy to support activity, especially with no real signs of inflation among the advanced economies.
On fiscal policy, she warned that "a global undifferentiated rush to austerity will prove self defeating", and that "countries like the United States with low costs of borrowing should not move too quickly". But she also cautioned about complacency regarding US public debt, and urged a stronger push to curb the growth of entitlement spending and raise more revenue. More action is also needed in the United States to ease the burden of household debt, which is holding back the recovery.
Noting that over 200 million people globally, including nearly 13 million in the US, are without work, she said,: "jobs must be a priority".
Calling for stronger global cooperation, she stressed the importance of the mandate of the IMF: “The idea behind the IMF was simple: if countries worked together in the common interest and helped each other in times of need, then everyone would prosper together. If this idea was important in 1944 [when the IMF was founded], it is equally important today.”
She stressed that for the IMF to continue to be effective, it needed more financial resources. “Now that the Europeans have moved first with their firewall, the time has come to increase our firepower”, she said. The IMF is a good investment for all its 187 member countries, including the United States, she continued, adding that no member country has ever lost money by contributing to IMF resources.
Press release
© International Monetary Fund
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