MF chief tells Europe to boost growth
By Guy Dinmore – Published: June 17 2010
Dominque Strauss-Kahn, head of the International Monetary Fund, on Thursday challenged European leaders to boost growth and save the eurozone from irrelevance, while expressing concern that leaders of the Group of 20 leading economies were losing momentum in fixing the international finance system.
Governance in the eurozone had proven to be weak in the global crisis and it now found itself “in the middle of a river”, the IMF chief told an audience of ministers, state bankers and EU officials attending an economic conference in Rome hosted by the Long-term Investors Club.
“The single currency cannot work without economic coordination and hopefully this crisis will convince governments that coordination is the way forwards,” he said. If not, he went on, the next decade would be dominated by “fights” between the US and China with the European Union left out of the picture.
Naming Germany, France and Italy – the three largest euro-zone countries, he asked why growth rates in Europe of just one to 1.5 per cent could not match the 3 per cent growth rate of the US. Demographics was just a small part of the answer, he added, blaming poor coordination in EU policy-making.
There was no way out of this “explosive situation” without growth, he said.
Mr Strauss-Kahn said that at the height of the crisis last year, world leaders had shown at the G8 and G20 summits a serious commitment to fixing the origins of the crisis in the financial sector.
But now they were more concerned about domestic problems and were “losing momentum” at the global level, he said, urging action at the summits next week in Toronto and Seoul in November.
“Momentum has not disappeared but it is not as strong as it was a few months ago,” he said, referring specifically to divisions over the need for a rescue fund with fiscally strong economies thinking they were “immune” and did not need such contingencies.
The crisis was not over, he said, describing the uneven nature of recovery – “fast in Asia, not bad in Latin America, uncertain in the US and rather sluggish in Europe”. But the IMF did not see a danger of a double-dip recession, he added.
In reply Giulio Tremonti, Italy’s finance minister, said the early May agreement on the euro-zone rescue fund represented a political leap forward and was the beginning of what he called a new European “architecture”.
Aiming criticism at Germany, Mr Tremonti said an export-led model could work for some countries but not Europe as a whole.