IMF's Lagarde: World needs $1tn for recovery
Tuesday 24 January 2012 - by Karina Whalley
Speaking in Berlin on Monday, IMF managing director Christine Lagarde called on the international community to take urgent action to stop the economy from its downward spiral.
However, the 56-year-old was quick to point out that countries will need to make strong policy commitments to secure IMF lending.
"Our role is to catalyse, not indefinitely replace, private financing," she said.
Europe is "at the centre of concerns" and needs stronger growth, larger firewalls and deeper integration, according to the IMF head.
Lagarde advocates "timely" monetary easing and raising banks' capital levels rather than cutting back lending, as the way to boost capital ratios. She also said it is crucial that "orderly funding conditions" are maintained.
"We need a larger firewall. Adding substantial real resources to what is currently available by folding the European Financial Stability Facility into the European Stability Mechanism, increasing the size of the ESM and identifying a clear and credible timetable for making it operational would help greatly," Lagarde said.
"We must also break the vicious cycle of banks hurting sovereigns and sovereigns hurting banks," warned Lagarde, who has been IMF head since July.
To do so, she said banks must be made stronger and confidence in sovereign debt must be restored, while to stop the feedback loop between sovereigns and banks, there needs to be more risk sharing across borders in the banking system.
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