IMF director says global recovery very fragile

Published April 3, 2012 3:27PM (EDT)

WASHINGTON (AP) — The managing director of the International Monetary Fund said Tuesday that the global economy is making some advances in digging itself out of a punishing recession, but that the recovery remains very fragile, especially in Europe. She suggested cutting government spending too quickly in developed countries like the United States and larger European nations could make things worse, not better.

Policy-makers on both sides of the Atlantic need "breathing space to finish the job," Christine Lagarde said in prepared remarks to the Associated Press Annual Meeting Europe's faltering would put the U.S. economy and American jobs at risk. "America has a large stake" in how Europe and the rest of the world fares, she says.

She said it is important to continue and expand emergency programs among the 17 countries that use the euro to help heavily indebted countries there.

"We should not delude ourselves into a false sense of security," she said. "The recovery is still very fragile. The financial system in Europe is still under heavy strain. Debt is still too high, public and private. Stubbornly high unemployment is straining the seams of society. Rising oil prices have the potential to do a lot of damage."

Her remarks came after the Eurozone countries on Friday boosted their emergency bailout funds for heavily indebted by $1.1 trillion (800 euros). That was short of what Lagarde and other international leaders have said is needed to calm financial markets.

She suggested that bold steps are needed such as those taken by the U.S. Federal Reserve and the European Central Bank to help "keep growth strong and steady."

She said, most countries are running deficits that are too high and "need to bring down debt over time. And, yes, some countries under pressure have no choice but to cut deficits today. But a global undifferentiated rush to austerity will prove self-defeating. Countries like the united States with low costs of borrowing should not move too quickly."

Those remarks thrust her into the U.S. presidential debate, where Republicans are united in calling for deep cuts in federal spending, while President Barack Obama — who was to address the Associated Press meeting later Tuesday — and congressional Democrats are calling for more job-creating spending, along with raising taxes on the wealthy to help trim budget deficits now exceeding $1 trillion a year.

Lagarde, noting that over 200 million people globally, including nearly 13 million in the U.S., are without work, declared, "jobs must be a priority."

By Salon Staff

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