Press Release: IMF Managing Director Dominique Strauss-Kahn Calls for Strengthening European Integration and Cooperation
March 29, 2010Press Release No. 10/120
March 29, 2010
Speaking at the Warsaw School of Economics, IMF Managing Director Dominique Strauss-Kahn said that while the recent financial crisis had exposed some weaknesses in Europe’s institutional framework, there is now an opportunity to strengthen integration and cooperation across the continent. “The crisis has been a setback, but the benefits of integration are beyond doubt,” he said. “Now is the time to take the European project to the next, higher level.”
For the countries of Central and Eastern Europe, in particular, Mr. Strauss-Kahn said that closer integration with Western Europe had led to significant improvements in terms of economic growth, trade, investment, and income levels. Referring to the “remarkable rise in living standards” in the transition countries over the last 20 years, he said “that is what is most important: integration has improved the quality of people’s lives.”
At the same time, he said the financial crisis had hit Europe hard and had made clear the need for further action in three priority areas, in particular:
• First, a fundamental overhaul of Europe’s financial architecture. “I see a clear need for an integrated European framework for crisis prevention, management, and resolution”, he stated. This framework should also include a European Resolution Authority, with the mandate and tools to deal cost-effectively with failing systemic cross-border banks.
• Second, a strengthening of Europe’s economic policy coordination. He noted that the major policy frameworks of Europe—macroeconomic, financial, and structural—are currently relatively independent of one another. “One of the lessons of the crisis in Europe is that a single currency without enough policy coordination may lead to huge imbalances,” he said.
• Third, the need for action to reignite growth and tackle unemployment. “European countries must work together to sustain the recovery”, Mr. Strauss-Kahn said. In the short run, macroeconomic and financial policies should be geared toward supporting growth and facilitating adjustment in countries with large fiscal and current account deficits. In the long run, boosting Europe’s competitiveness will be key—for example, by tackling rigidities in labor and product markets. He cited the experience in emerging Europe, where “effective labor markets are allowing many economies to recover more rapidly from the crisis—and should provide a boost to their competitiveness for many years to come.”
Poland, the Financial Crisis, and the IMF
Mr. Strauss-Kahn commended the government and people of Poland on their economic achievements over the past two decades and, more recently, their response to the financial crisis. He said that “sound macroeconomic and financial management” had enabled Poland to emerge from the crisis relatively unscathed. He pointed out that Poland was the only economy in the European Union to register positive economic growth in 2009. This demonstrated clearly that “good policies and strong institutions matter.” He said that the IMF’s flexible credit line of $20 billion had, in part, helped Poland to weather the financial crisis.
Mr. Strauss-Kahn noted also that the IMF has been helping other economies in the region face the crisis, partnering effectively with the European Union. He emphasized that the IMF’s financing “comes with conditionality, which is necessary to ensure that the causes of the problems are addressed. But I have to stress that if the IMF provides the framework of the program, it is the countries’ authorities who decide on the specific measures. In addition, we have been emphasizing and promoting social conditionality to minimize the effect of the crisis on the most vulnerable.”