• Schaeuble and Lagarde at the EU Council in Brussels (Photo: consilium.europa.eu)

Schaeuble rebukes IMF boss on eurozone debt

12.10.12 @ 10:17

  1. By Benjamin Fox
  2. Benjamin email

BRUSSELS - International Monetary Fund (IMF) boss Christine Lagarde and German finance minister Wolfgang Schaeuble went on collision course on Thursday (11 October) on the subject of eurozone debt and deficits.

Speaking at TV debate in the IMF's annual meeting in Tokyo, Lagarde said that countries should not be obliged to keep to ambitious deficit reduction targets if their economies remained stagnant, adding that higher public spending and tax cuts could be used as stimulus measures.

Schaeuble hit back, saying Lagarde is contradicting the IMF's stance on austerity.

The fund had warned "time and again" that Western economies needed to prioritise debt reduction, he said.

"When there is a certain medium-term goal, it doesn't build confidence if one starts going in a different direction," he added.

The IMF chief at a separate press conference earlier in the day had struck a different tone, describing runaway government debt levels as the greatest problem facing western economies, commenting that they are at "wartime levels." 

"Without growth, the future of the global economy is in jeopardy, and perhaps the greatest roadblock will be the huge legacy of public debt," she had said.

Meanwhile, in another move likely to rile Berlin, Lagarde indicated the Fund is prepared to give debt-ridden Greece an extra two years to push through deficit reduction plans aimed at bringing the country's debt mountain, which currently stands at around 160 per cent of GDP, under control.

"Sometimes it is better to have more time," she said.

Berlin is coming under increasing pressure to take a more flexible approach to bailouts as the eurozone's economic woes deepen.

Earlier this week the IMF cut its growth projections for the eurozone, which it said would expand by 0.2 per cent in 2013. It also confirmed that the 17 eurozone economies would contract by 0.4 per cent in 2012.

The economic pain remains most acute in the five EU countries receiving emergency funding, with Greece, Portugal and Spain in particular difficulty.

The eurozone debt crisis will again take centre stage at next week's EU summit in Brussels when EU leaders try to flesh out plans for a growth and jobs pact agreed at the June summit.