The euro zone needs a “clear, simple firewall” to restore international trust in it, International Monetary Fund Managing Director Christine Lagarde said Saturday.
In a panel discussion at the World Economic Forum, Lagarde repeated her call for more fiscal stimulus from those countries in the euro zone with the capacity for it.
“I can think of one or two,” she said, in an oblique reference to Germany, which is set to bring its budget into balance by 2013, after strong growth in the last two years.
She also repeated her call for more resources for the IMF, saying “no country is immune” from the contagion that the crisis in the euro zone could cause.
On the same panel, U.K. Chancellor George Osborne agreed that “there is a case for more IMF resources,” but didn’t otherwise move beyond his government’s position that the euro zone itself should first find the resources to deal with its problems.
Mr. Osborne said the world should give the euro zone credit for all that it has achieved in the past two years, in terms of reducing budget deficits, creating the European Financial Stability Facility and introducing structural reforms.
However, both warned that the region still has more to do. Mr. Osborne specifically pointed to the possibility of Greece destabilizing the rest of the region.
“There is a risk of the tail wagging the dog,” he said.
Bank of Canada Governor Mark Carney, meanwhile, observed that although the level of bank capital around the world has risen substantially since the crisis, it has done so least in Europe.
Hopes have risen this week that Greece will be able to conclude a voluntary debt restructuring with its private-sector creditors, cutting its overall debt burden by EUR100 billion. By Friday, the euro had risen to its highest level against the dollar in seven weeks.
The Institute of International Finance, which is conducting negotiations on behalf of the creditors, said in a statement late Friday in Europe that the two sides still hadn’t agreed on all terms of the deal.
Source: The Wall Street Journal