The IMF Managing Director noted that we are seeing the emergence of a “three-speed” global economy—those countries that are doing well (mainly the emerging markets and developing countries), those that are on the mend (including the United States), and those that still have some distance to travel (such as the Euro Area and Japan).
While euro area policymakers have taken a number of significant steps, the priority in that region is to clean up the banking system by recapitalising, restructuring, or—where necessary—shutting down banks. This includes making progress with banking union.
Lagarde noted that there is another set of overarching issues that affects all regions—issues that have been with us since the beginning of the crisis but have not yet been fully resolved.
The first of these is financial sector reform. “We simply cannot have pre-crisis banking in a post-crisis world”, Lagarde said. She called for more progress on the regulation of too-big-to-fail, derivatives, and shadow banking.
The second overarching issue is more balanced global demand: there is a need for more action from surplus countries, including by strengthening investment in Germany and strengthening consumption in China.
The third point is more emphasis on growth, jobs, and equity. The best way to create jobs is through growth, but policymakers can also deploy labour market policies to spur job creation more directly. “Job creation is an urgent priority”, Lagarde said, “without this, we risk a wilderness of wasted potential and ruined ambition—especially for a generation of young people".
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