Wednesday

19th Jun 2019

Eurozone in danger of repeating Japanese stagnation, IMF chief warns

  • Lagarde: the eurozone is in danger of following Japanese stagnation (Photo: International Monetary Fund)

International Monetary Fund boss Christine Lagarde has warned that the eurozone risks following Japan and falling into a prolonged cycle of recession and stagnation.

Speaking on Thursday (9 October) ahead of the IMF's annual meeting in Washington DC, Lagarde said: “We have also alerted to the risk of recession in the eurozone", putting the likelihood of a drop in output at "between 35-40%, which is not insignificant".

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • (Photo: World Economic Forum)

“We are not saying that the eurozone is heading towards recession, but we are saying that there is a serious risk of that happening if nothing is done,” said Lagarde, adding that “in advanced countries, the recovery is being driven by the US and the UK. The eurozone and Japan are lagging behind”.

The eurozone economy flat-lined in the second quarter of 2014, with negative growth rates recorded in Germany and Italy.

Statistics published by German authorities on Thursday revealed that the country's exports fell by 5.8 percent in August, the largest monthly fall since 2009, raising the prospect of Germany falling into a technical recession.

However, despite faltering exports and low business confidence, Germany still recorded a €17.5 billion surplus.

In a nod to this, Lagarde indicated that surplus countries should invest and consume more to stimulate growth, noting that “if the right policies are decided, if both surplus and deficit countries do what they have to, recession is avoidable”.

In response, German finance minister Wolfgang Schauelbe told reporters that growth would not be "achieved by writing checks".

For his part, ECB chief Mario Draghi stated that the European economy would not recover without painful structural reforms.

Speaking at the Brookings Institute, a think tank in Washington DC, Draghi said: "I cannot see any way out of the crisis unless we create more confidence in the future potential of our economies".

"All too often has reform been postponed in bad times…and then forgotten in good times," he said.

The ECB plans to buy bank securities worth up to €1 trillion between now and the end of the year, as it steps up its intervention in the financial markets to stimulate higher lending to businesses.

Last month, the Frankfurt-based bank launched its Targeted Longer-Term Refinancing Operations (TLTRO) programme, which offers cheap four year loans to banks who increase their lending to small businesses.

At the first auction of the programme last month, lenders borrowed just €82.6 billion from a facility worth up to €400 billion.

Schaeuble and Bundesbank chief Jens Weidmann have complained that the bank is taking on too much risk by loosening its rules on the asset quality it will accept as collateral.

They are also uncomfortable at the prospect - which the ECB has not ruled out - of the bank itself buying government bonds.

Draghi stated that the bank had "acted aggressively", and had changed its strategy from being "predominantly founded on passive provision of central bank credit to a more active and controlled management of our balance sheet".

The ECB will also later this month publish the results of its 'stress tests', which assess whether banks would be able to cope with future economic crises.

According to Draghi, European banks have strengthened their balance sheets by €203 billion since summer last year.

Opinion

Japan is back: Is Europe ready?

The expected free trade agreement between the EU and Japan will help the historic partners to forge a solid and mutually advantageous anchor in the troubled waters of current international politics.

EU urges Swiss to move on talks or face sanction

The EU commission tells Switzerland that clarifications to the draft deal are possible - but not renegotiations. The message is clear to 'Brexit' Britain as well: the Swiss model is over, there are no special agreements.

Frontex transparency dispute goes to EU court

The General Court of the European Union in Luxembourg will next month hold a public hearing on the refusal by Frontex, the EU's border agency, to release documents concerning its border control and surveillance operation known as Triton.

News in Brief

  1. New socialist group leader to push for Timmermans
  2. Romanian ex-PM frontrunner to head new liberal group
  3. France, Germany and Spain in fighter jet deal
  4. Tusk grilled in Poland over role as PM
  5. Italy is 'most credible' US partner in EU, says Salvini
  6. EU blames Sudan junta for killings and rapes
  7. Report: EU may suspend Turkey customs union talks
  8. Swiss stock exchange could lose EU access in July

Interview

Meet the lawyer taking the EU migration policy to the ICC

Juan Branco is a lawyer and co-author of a legal document submitted to the International Criminal Court (ICC) accusing EU officials and member states of crimes against humanity for their migration policies. "Some people should have to go to prison."

Agenda

Top EU jobs summit dominates This WEEK

A summit in Belgian capital this week will host heads of government and state to discuss top EU institutional posts. But before they meet, the jockeying for the Commission presidency will have already started among the European political groups.

Stakeholders' Highlights

  1. Nordic Council of MinistersNo evidence that social media are harmful to young people
  2. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  3. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  4. Nordic Council of MinistersEducation gets refugees into work
  5. Counter BalanceSign the petition to help reform the EU’s Bank
  6. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  7. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  8. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  9. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  10. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  11. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  12. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody

Latest News

  1. EU urges Swiss to move on talks or face sanction
  2. Frontex transparency dispute goes to EU court
  3. Commission goes easy on scant national climate plans
  4. Macron and Mogherini decline to back US accusation on Iran
  5. EU summit must give effective answer on migration
  6. Spain's Garcia set to be next Socialist leader in parliament
  7. Erdogan mocks Macron amid EU sanctions threat
  8. The most dangerous pesticide you've never heard of

Join EUobserver

Support quality EU news

Join us