IMF: How can Eurozone avoid stagnation

(L-R) International Monetary Fund Managing Director Christine Lagarde, IMF First Deputy Managing Director David Lipton, and IMF Deputy Managing Director Naoyuki Shinohara at IMF Headquarters on April 21, 2013 during the 2013 IMF/World Bank Spring Meetings in Washington, D.C. (IMF Staff Photo/Michael Spilotro).

(L-R) International Monetary Fund Managing Director Christine Lagarde, IMF First Deputy Managing Director David Lipton, and IMF Deputy Managing Director Naoyuki Shinohara at IMF Headquarters on April 21, 2013 during the 2013 IMF/World Bank Spring Meetings in Washington, D.C. (IMF Staff Photo/Michael Spilotro).

The International Monetary Fund in its World Economic Outlook (WEO) report published this week states that while drafting it, the Fund’s economists were forced to create a new category of economic recovery or rather stagnation, to include in it only the euro area. In the preface, the Fund economists state plainly that “what was until now a two-speed recovery, strong in emerging market and developing economies but weaker in advanced economies, is becoming a three-speed recovery”.

Eurozone alone in a category of stagnation

Emerging markets and developing economies are still going strong, so the Fund’s economists had to note that “in advanced economies, there appears to be a growing bifurcation between the United States on one hand and the euro area on the other. Growth in the United States is forecast to be 1.9 percent in 2013 and 3.0 percent in 2014. In contrast, growth in the euro area is forecast to be –0.3 percent in 2013 and 1.1 percent in 2014…The forecast for negative growth in the euro area reflects not only weakness in the periphery but also some weakness in the core. Germany’s growth is strengthening but is still forecast to be less than 1 percent in 2013”.

IMF’s criticism of Eurozone continues as it follows: “France’s growth is forecast to be negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and low confidence. This may call into question the ability of the core to help the periphery, if and when needed. Most euro area periphery countries, notably Italy and Spain, are expected to have substantial contractions in 2013”.

It’s not the first time that the IMF criticises Eurozone for the sluggish economic recovery, at a time when the rest of the world has already left behind the crisis years. It is more interesting to observe however that the IMF not only criticises Eurozone’s poor economic performance, but now it has formulated a policy package for the euro area’s return to economic growth. It’s not a small thing for an economic entity of Eurozone’s weight to accept such detailed policy advises. Still the IMF officials didn’t hesitate issuing long ‘growth recipes’ for use by the euro area officials.

The recipe

During the past weekend at the spring conference of the IMF and the World Bank, the Fund’s official avoided to criticise Eurozone’s representatives being present there, and of course didn’t address any public criticism to the German Federal minister of Finance Dr Wolfgang Schäuble. Actually Germany was congratulated on this occasion for its internal fiscal consolidation expected to lead this year to a surplus of 0.3% of the GDP. This being a unique positive result in government budget administration all across the entire Eurozone of the 17 member states.

IMF First Deputy Managing Director David Lipton, the number two of the Fund, however, when in London last Thursday to participate in the “Bellwether Europe 2013” conference didn’t chew his words and plainly asked Eurozone to do more towards growth. He also didn’t miss the opportunity to criticise the British hostility against the euro, by saying that, “I have been asked to speak today to the topic of “Saving the Euro.” On reflection, that topic might have been more suitable a year ago, before the euro area governments and institutions took important steps that gave us some distance from that worst-case scenario”. Incidentally this “Saving the Euro” conference was organised by The Economist weekly, a firm opponent of Eurozone’s. The title of this conference was also criticised by Jörg Asmussen, Member of the Executive Board of the ECB, who was also speaking there.

A full programme

Let’s go back however to what Lipton had to propose for Eurozone’s return to growth. “The risk of stagnation is not remote in the face of weak growth, fragmented markets, impaired balance sheets, and half-completed reforms,” he said. Then Lipton passed to details. He actually put together an entire growth package for Eurozone as it follows here below.

“To avoid stagnation, Europe needs to act on several fronts. Countries will need to have clear and specific commitments to medium-term fiscal consolidation, with the appropriate pace to be evaluated on a case-by-case basis. Careful consideration should also be given to the composition of fiscal measures. The European Central Bank (ECB) should maintain its very accommodative stance, he said, but noted that eliminating financial fragmentation – whereby households and companies in some countries face clogged credit channels and lending rates well above those in the core – will probably require the ECB to implement some “additional unconventional measures.”

Action on the Banking Union will also be essential to address financial fragmentation, he said, calling the Single Supervisory Mechanism “a key step” and adding that, on the single resolution authority, the IMF supports a market-based bail-in approach as being considered in the European Union Directive on Bank Recovery and Resolution, which would require banks to hold a minimum amount of securities with features that permit them to be written-off or converted to equity if capital buffers fall too low.

“This approach places the primary burden on each institution and its creditors rather than its country, and could defuse some of the political tension on this subject,” the number two of IMF added.
It was a full set of advice covering everything. From fiscal consolidation to the handling of the resolution of failing Eurozone banks and ECB’s policies. Lipton didn’t leave anything out.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Senior UN children’s advocate says they ‘should never be targeted by violence’

The Philippines is reopening a ‘cesspool’ island after a six month clean up

The EU’s outermost regions: strengthened partnership bears fruit

Guterres calls for ‘maximum restraint’ following drone assault on key Saudi oil facility

Health services for Syrian women caught up in war, foster safety and hope: UNFPA

This is how music festivals are tackling plastic waste

From inconvenience to opportunity: the importance of international medical exchanges

EU/African, Caribbean and Pacific partnership: MEPs list key aims for renewal

How drones can manage the food supply chain and tell you if what you eat is sustainable

Europe led by Germany seems vulnerable to Trump’s threats

Mobile technology saving lives: How simple technological solutions can improve our health care system

Scourge of slavery still claims 40 million victims worldwide, ‘must serve as a wakeup call’

Brexit casts a shadow over the LSE – Deutsche Börse merger: a tracer of how or if brexit is to be implemented

International partners pledge $1.2 billion to help cyclone-hit Mozambique recover, ‘build back better’

The Irish Presidency bullies the Parliament over EU budget

How cities can lead the way in bridging the global housing gap

Marginalized groups hit hardest by inequality and stigma in cities

Myanmar companies bankroll ‘brutal operations’ of military, independent UN experts claim in new report

Investment, not debt, can kick-start an entrepreneurial Europe

EU job-search aid worth €2 million for 500 former shipbuilding workers in Spain

‘Pioneering’ former Chilean President Michelle Bachelet officially appointed new UN human rights chief

TTIP’s 11th round major takeaways and the usual “leaked” document

Denmark plans ‘Silicon Valley’ on 9 artificial islands off Copenhagen

There is a mental health crisis in entrepreneurship. Here’s how to tackle it

Glaringly false reassurances about the repercussions of the EU-US free trade agreement

The 5 things you need to make your teams more effective, according to Google

Why developing new antibiotics is a matter of life and death

Countries must invest at least 1% more of GDP on primary healthcare to eliminate glaring coverage gaps

Urban Waste Water: Commission decides to refer Slovenia to the European Court of Justice over waste water treatment

UN and civil society team up to make cities more sustainable and inclusive

Coronavirus: a Disease that spreads as fastly as its fake news

We must stop turning a blind eye to the world’s health crises

Trust in facial recognition technology can be achieved. Here’s how

Trump fines China with $50 billion a year plus some more…

‘We will not give up on looking for peace for South Sudan’: UN deputy chief

‘Open, cordial, and frank discussions’ held over future Somalia-UN relationship

Fairness should be at the heart of the agricultural goods trade

Summer 2019 Economic Forecast: Growth clouded by external factors

Regional competitiveness and growth: a Gordian knot for Europe

Bureaucracy in the member states again the obstacle for long due strong European Hedge Funds

‘Growing alarm’ over Fall Armyworm advance, with cash crops ‘under attack’ across Asia

Future EU financing and recovery: MEPs to assess summit outcome

Coronavirus: Commission launches data sharing platform for researchers

Iraq: Security Council told ‘despair’ has ‘given way to hope’ but road to stability ‘long and far from easy’

Bangladesh, South Africa and Bolivia all beat the US for women’s representation in politics

There are 3 barriers blocking good menstrual hygiene for all women. Here’s how we overcome them

New Erasmus: more opportunities for disadvantaged youth

70 years after the Universal Declaration of Human Rights, this is why we need dignity more than ever

From his room with a view, UN chief takes to Instagram with an eye on hope and a brighter future

EU-China Leaders’ Meeting: Upholding EU values and interests at the highest level

Fail fast, fail better: 3 ways companies can master innovation

How do we upskill a billion people by 2030? Leadership and collaboration will be key

Crimean crisis: not enough to slow down European indices

‘Compelling case’ for urgency around global disarmament, UN-led forum told

Parenting in the time of COVID-19? Consider these 6 tips from the WHO

How to fight back against misinformation and polarization

Burned in the Amazonian forest: Your health may be in danger

Global Citizen-Volunteer Internships

How COVID-19 is taking gaming and esports to the next level

Erdogan vies to become Middle East Sultan over Khashoggi’s killing

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s