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21st May 2022

IMF chief: End of euro unlikely in 2012, but crisis will drag on

  • 'Will 2012 be the end of the euro currency? My answer is I don't think so,' says Lagarde. (Photo: European Council)

The euro will not "vanish" this year, but problems within the eurozone will slow down the global economy, with the International Monetary Fund set to lower its growth predictions in an upcoming report, its chief Christine Lagarde said Friday (6 January).

"Will 2012 be the end of the euro currency? My answer is I don't think so," she told reporters after meeting the South African finance minister.

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"It's a young currency, it's a solid one as well. You have, within the zone, not in relation with the currency, serious pressures and issues concerning the sovereign debt, concerning the strength of the banking system, but the currency itself is not one that would vanish or disappear in 2012," she added.

However, Lagarde appeared less convinced when asked about Greece potentially exiting the single currency.

"Will Greece quit the euro zone in 2012? The euro partners have affirmed, reaffirmed, and reaffirmed their determination. We can only support that."

Greek officials this week warned of an "uncontrolled default" and being left "out of the euro" as they struggle to convince unions to cut labour costs - a key condition for the next tranche of bail-out money.

On Friday, the euro tumbled to record lows against the US dollar and Japanese yen, as it traded for $1.27, the lowest in 16 months and 98.21 yen, the lowest level in 11 years.

Meanwhile, fears of a credit crunch in Europe are returning as banks parked a record €455 billion in the European Central Bank instead of lending to each other or to the real economy. The sum is almost equal to the cheap loans made available to EU banks by the very same ECB, precisely in order to avoid liquidity strains which would bring national economies to a halt.

Fresh Eurostat data published that same day from November showed that eurozone unemployment remained at an all-time high of 10.3 percent for the second month running, with the highest rates once again registered in Spain (22.9%) and Greece (18.8%).

Lagarde, who last month warned of another "Great Depression" looming due to the eurozone crisis, told her South African hosts to brace themselves for a "2012 that will not be a walk in the park" and that they may "suffer setbacks if the Europe crisis is not addressed successfully."

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