January 24, 2012
The head of the International Monetary Fund warned that in addition to cutting yawning budget deficits Europe needs to do more to promote growth and stop the crisis from spreading to the world economy.
"It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said before the German Council on Foreign Relations. "A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.
Ms. Lagarde has made similar warnings before, but the statements Monday come as Greek debt talks have hit a roadblock and Europeans are growing weary of deep public-spending cuts. The remarks in Berlin also came as across town Germany Chancellor Angela Merkel in a news conference rejected calls to discuss a massive expansion of Europe's bailout funds.
The opposing positions held by Ms. Lagarde and Ms. Merkel clearly demonstrate where the fault line lies in the debate in Europe, just over two years since the beginning of a crisis that threatens to split the euro zone and severely damage the global economy. On the one side of the argument is Germany with its belief that Europe needs to fix the broken rules of its monetary union and make deep cuts in public spending to preserve the euro. But others, like Ms. Lagarde, warn Europe's austerity cure could itself destroy the euro by exacting irreparable damage on Europe's weakest members.
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