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22nd Feb 2024

IMF chief: 2013 is make-or-break year for eurozone

  • 'We have to tackle inequality in our societies and promote women,' Lagarde said (Photo: World Economic Forum)

International Monetary Fund (IMF) chief Christine Lagarde has said that eurozone leaders should "keep the momentum" of reforms like the banking union, as recession is now forecast to linger on in 2013.

"2013 will be a make or break year. The biggest risks are in the developed countries - Japan, the eurozone and the US, there are threats if they don't keep up the momentum," Lagarde said on Wednesday (23 January) during her speech at the World Economic Forum in the Swiss resort of Davos.

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Earlier that day, the IMF revised its global growth forecast, giving a more pessimistic outlook than three months ago: instead of a 0.1 percent increase in the eurozone this year, the Washington-based lending body now predicts a recession of 0.2 percent.

Lagarde said it was important for the eurozone to have a functional banking union in place as soon as possible, in reference to current negotiations on setting up a single supervisor for banks, to be hosted by the European Central Bank.

"Fiscal consolidation, however painful it may be in some areas of the eurozone, must continue, as well as a clear focus on jobs," Lagarde said.

She repeated what top economists at the IMF admitted in a study earlier this month - that "policy makers did not pay enough attention to inequality" and focused too much on spending cuts at the expense of the most vulnerable in the society.

"What is less clear is how to achieve that inclusive growth. Minimum wages can also work sometimes, but if there is any priority, it should be youth employment," she said.

Over half of young people in Greece and Spain are out of a job, as national economies continue to shrink, the fourth year of recession for Greece and the second for Spain.

Lagarde, a former French finance minister under whose leadership the IMF has become more sympathetic to social woes, criticised the vested interests and corrupt networks in the financial sector, saying they were at the root of the 2008 financial crisis.

"Too much activity was hidden away in shadowy corners. Things have changed, but we need further and better changes in 2013, to finish up the financial sector reform, for instance on shadow banking and derivatives," she noted.

The EU is struggling to strengthen rules for the financial sector, but critics say the new laws have been watered down by lobbying from banks and investment funds.

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