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EU, US and IMF clash over the European economy and the Euro in Davos

Friday, January 23rd 2015 - 06:20 UTC
Full article 14 comments
“There is a general expectation to compare the US economy and the Euro area and I don't think that's a reality,” said Christine Lagarde “There is a general expectation to compare the US economy and the Euro area and I don't think that's a reality,” said Christine Lagarde
“If we don't keep our debts down then we will leave a very heavy burden to the next generation... This would be irresponsible,” argued Angela Merkel “If we don't keep our debts down then we will leave a very heavy burden to the next generation... This would be irresponsible,” argued Angela Merkel

Europeans, including IMF chief and Americans clashed on Thursday in Davos during a debate on monetary stimulus that degenerated into a skirmish over the European Union economy and the Euro.

 “There is a general expectation to compare the US economy and the Euro area and I don't think that's a reality,” Christine Lagarde, IMF Managing Director said after an onslaught from her largely American co-panelists, including the CEO of megabank Goldman Sachs.

Hand-wringing over the fate of a wobbly Europe has become a Davos tradition, ever since debt-wracked Greece threatened to destroy the Euro zone in 2010.

This year was no different, especially with Greek elections set for Sunday and the European Central Bank's decision to unleash a massive bond-buying scheme worth 60 billion Euros despite resistance from the bloc's most powerful member, Germany.

Rather than Greece, or other usual targets France and Italy, it was Germany that stirred debate, blamed for a blind push for austerity and imposing its singular economic vision on others.

“It is the failure to recognize that a one-off model that worked to produce export-led growth for Germany in the early part of the decade will lead to an outcome that is worse for everyone now,” said former US treasury secretary Lawrence Summers.

“It is the error of assuming that the strategy that worked for one once, when applied universally will work,” he said.

Lagarde however doubted that there was that much space for Germany to do anything to help out its neighbors and that little room existed for more public spending.

Options were limited “given that we're in a high-unemployment, high-debt environment, and given that structural reforms are fine but effectively what we need the most is demand, and not many in the Euro zone have fiscal space to do that,” she said.

Summers decried a “lack of imagination” by the Europeans to solve their problems, bringing a sharp rebuke from Ana Patricia Botin, the new CEO of Spain's Banco Santander, Europe's biggest bank by assets.

“So you say Europe is less imaginative than the US?,” she called out to Summers, who now teaches at Harvard University.

“I'm much less negative on Europe than most Americans. We raised nine billion dollars and a lot of that came from Americans and may I say that was very smart money,” she said.

Defending Germany's stance, Chancellor Angela Merkel said the country's ageing population is a massive challenge and that Berlin could simply not afford to overspend.

“If we don't keep our debts down then we will leave a very heavy burden to the next generation... This would be irresponsible,” she said.

Speaking moments later at a panel on Europe, German Vice Chancellor Sigmar Gabriel said the reforms Germany passed almost a decade ago “took a long time to implement”.

”Some of these reforms that countries like Italy (and) France have to take are much larger than what we had to take,“ Gabriel, a social democrat said sympathetically.

Gabriel acknowledged that the ”task for Germany today ... through its own polices, its own investment is to support the EU,“ he said.

But the challenge was to ”persuade countries that they will benefit from structural reforms. That their children will be better served by them,“ he said.

Speaking on the Davos sidelines, Euro-group chief Jeroen Dijsselbloem praised the authorities in France and Italy but warned the task was not yet over. ”The present governments in France and Italy are much more ambitious in terms of reforms but it still has to be done,” said Dijsselbloem, who is also finance minister of the Netherlands.

Categories: Economy, Politics, International.

Top Comments

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  • ChrisR

    And what's the Euro good for: absolutely nothing! (Apologies to Edwin Starr)

    Roll on the UKIP coalition to force Camoron to get out of this thieves kitchen and the sooner the better.

    Jan 23rd, 2015 - 11:21 am 0
  • Conqueror

    The European Union is a basket case economically. But that's not important. The EU doesn't have to balance its books. Short of money? Just demand that the members pay more. There's no such thing in the EU as 'living with one's means'. They spend what they like and then demand more. A current problem is the 'freedom of movement' principle. All these years and someone has finally noticed that it is freedom of movement to work. Not freedom of movement to go and skive off some other country's welfare system. Now, if we could only persuade the NHS to do its part. Try getting medical treatment in the US unless you can pay. I was in the US once and contracted an agonising ear infection. The hospital receptionist was more interested who was going to underwrite the cost of consultation, never mind the pain. NHS hospitals and GPs should take a credit or debit card from foreigners right at the start.

    Jan 23rd, 2015 - 12:18 pm 0
  • Clyde15

    On the TV last night..after Question Time...there was a discussion on the matter of EU residents “scrounging” unemployment benefits in the UK.
    The official figures showed that substantially more UK citizens were claiming benefit abroad than EU citizens claiming in the UK. Germany and France paying out up to 3 times more than could be claimed in the UK.
    Not the story that UKIP and the Daily Mail are putting out.

    Jan 23rd, 2015 - 06:18 pm 0
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