Christine Lagarde: We Need Leadership, Not Brinksmanship


Opinion: (Christine Lagarde, Managing Director, IMF): “We are certainly living through times of great economic anxiety. Exactly three years after the collapse of Lehman Brothers, the economic skies look troubled and turbulent as global activity slows and downside risks increase.

“In our inter-connected world, economic tremors in one country can reverberate swiftly and powerfully across the globe, especially if they originate in systemic economies. IMF research has shown that financial linkages transmit such tremors rapidly and broadly. And because of lingering debt problems, financial stability risks have risen significantly.

“Social tensions [are] bubbling below the surface. I see a number of interweaving strands here—entrenched high unemployment, especially among the younger generation; fiscal austerity that chips away at social protections; perceptions of unfairness in ‘Wall Street’ being given priority over ‘Main Street’; and legacies of growth in many countries that predominantly benefited the top echelons of society. These issues add more fuel to the confidence crisis.

“So, what can be done? I want to propose today four key policy dimensions needed to secure recovery and economic stability—repair, rebalance, reform, rebuild, the ‘4 R’s.’

“First, repair. Before anything else, we must relieve some of the balance sheet pressures that risk smothering the recovery—on sovereigns, on households, on banks.

“The second ‘R’ is reform.  If repair was about getting the economy moving today, reform is about laying the foundations for a more stable economic future tomorrow.

“The third ‘R’ is rebalance. This has two meanings. First, it means shifting back demand from the public to the private sector, when the private sector is strong enough to carry the load. This hasn’t happened yet.

“The second rebalancing involves a global demand switch from external deficit to external surplus counties… key emerging markets must take up the slack and start providing the demand needed to power the global recovery.

“My fourth—and final—‘R’ is rebuild. Here I am thinking mainly of the low-income countries that need to rebuild their economic policy buffers—including fiscal positions—that served them so well during the crisis, to protect themselves against future storms.

“I believe there is a path to sustained recovery, much narrower than before, and getting narrower. To navigate it, we need strong political will across the world—leadership over brinksmanship, cooperation over competition, action over reaction.”

My Comment: Only the problems are partially correct, but their solution is a “look back,” and they will bring only new problems because the old methods cannot solve anything. The world has become global, dear economists, and until you realize that the world is moving towards the economy of reasonable consumption, only the crisis will develop. So, what was said about brinksmanship is true….

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