## IMF Survey: Lagarde Calls For Urgent Action So 2012 Can Be ‘Year of Healing’

_IMF News, January 23, 2012_

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## Bibliographic details
- Published: January 23, 2012

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### Overview
- IMF Managing Director Christine Lagarde called for urgent collective action to prevent a downward spiral in the world economy and said “2012 must be a year of healing.”
- Europe is identified as the center of global concerns and needs stronger growth, larger firewalls, and deeper integration.
- The IMF said it was ready to help and was seeking to increase its lending resources by up to $500 billion.
- The IMF estimates that in coming years, additional global financing of potentially $1 trillion could be needed.
- Eurozone countries have already pledged to provide up to $200 billion in new financing for the IMF.

### IMF financing and cooperative approach
- Goal: “step up the Fund’s lending capacity” to supplement resources Europe will provide and to meet needs of other countries affected by the crisis.
- IMF estimate of additional global financing potentially needed: $1 trillion.
- IMF target to boost its lending resources by up to $500 billion.
- Eurozone pledge toward IMF financing: up to $200 billion.
- Emphasis: “A cooperative path means that all countries must work together with a common diagnosis toward a common solution.”

### Europe — Three imperatives to restore confidence
- Three imperatives Lagarde identified: stronger growth, larger firewalls, and deeper integration.

- Stronger growth
  - Concern: euro area economy slowing sharply and inflation already declining, creating risk it will fall well below target next year and raise debt burdens.
  - Policy recommendations:
    - Additional and timely monetary easing to reduce deflation risk.
    - Prevent banks from contracting credit under market pressure by focusing on raising capital levels rather than cutting back lending to boost capital ratios.
    - Fiscal policy: recognize that some countries must tighten sharply and quickly while “there is a large core where fiscal adjustment can be more gradual.”
    - Structural reforms to boost competitiveness and long-term growth.

- Larger firewalls
  - Rationale: without a larger firewall, fundamentally solvent countries like Italy and Spain could be forced into solvency crises by abnormal funding costs.
  - Policy recommendations:
    - Fold the EFSF into the ESM, increase the size of the ESM, and identify a clear and credible timetable for making it operational.
    - ECB action to provide necessary liquidity support to stabilize bank funding and sovereign debt markets.
    - Break the vicious cycle of banks hurting sovereigns and sovereigns hurting banks by restoring adequate bank capital levels and restoring confidence in sovereign debt.

- Deeper integration
  - Short-term proposal: a pan-euro area facility with capacity to take direct stakes in banks to help break the bank–sovereign link.
  - Further financial integration measures: unified supervision, a single bank resolution authority, and a single deposit insurance fund.
  - Fiscal integration: “The euro area also needs greater fiscal integration—it is not tenable for seventeen completely independent fiscal policies to sit alongside one monetary policy.”
  - Complement the “fiscal compact” with some form of fiscal risk-sharing; financing options include creation of euro area bonds or bills or a debt redemption fund as proposed by the German Council of Economic Advisors.

### Role of other major economies
- United States
  - Has special responsibility as the world’s largest economy and center of the global financial system.
  - Recommendations: relieve household debt burdens through programs to make mortgage debt sustainable and act decisively to bring down tomorrow’s deficits without bringing down today’s economy.

- Japan
  - As the world’s third largest economy, should put in place a credible plan to bring down public debt and undertake reforms to raise long-term growth.

- Emerging and advanced countries with large current account surpluses (including China)
  - Should encourage more domestic demand to support global growth.
  - Specific recommendation for China: continue to shift growth away from exports and investment toward consumption.

### Key messages and quotations
- “The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it.”
- “We must all understand that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral.”
- “Now the world must find the political will to do what it knows must be done.”

*IMF Survey: Lagarde Calls For Urgent Action So 2012 Can Be ‘Year of Healing’*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [In The News](https://www.imf.org/en/news/search)
- [Read the speech](https://www.imf.org/external/np/speeches/2012/012312.htm)
- [Press release on IMF resources](https://www.imf.org/external/np/sec/pr/2012/pr1213.htm)
- [Fixing flaws in EMU](https://www.imf.org/external/pubs/ft/fandd/2011/12/jaumotte.htm)
- [Blog: Europe’s dilemma](http://blog-imfdirect.imf.org/2011/10/21/growing-pains-europes-dilemma/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew012312a_