{
  "title": "Anchoring Stability to Sustain Higher and Better Growth",
  "publication": "IMF News, May 7, 2012",
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  "summary": "Speech by Christine Lagarde, Managing Director, International Monetary Fund, University of Zurich, Zurich, May 7, 2012. As prepared for delivery.",
  "authors": [
    "Christine Lagarde Managing Director"
  ],
  "publishDate": "2012-05-07",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Speech by Christine Lagarde, Managing Director, International Monetary Fund, University of Zurich, Zurich, May 7, 2012. As prepared for delivery.\n- Central question: how to achieve solid, sustained, balanced, and inclusive growth that spreads gains broadly—reconciling stability and growth rather than choosing one over the other.\n- Key framing: three focal issues—short-run path to growth, medium-run path to growth, and the fundamental importance of international cooperation."
    },
    {
      "heading": "Global macroeconomic context and key statistics",
      "content": "- Trade accounts for 94 percent of Switzerland’s GDP.\n- IMF estimates global growth to be about 3½ percent this year, with advanced economies at 1½ percent (including a mild recession in the euro area).\n- The output gap in advanced economies remains close to 4 percent this year on average.\n- Emerging markets and developing countries expected growth: 5¾ percent.\n- Global unemployment and youth:\n  - 200 million people worldwide cannot find work.\n  - 75 million young people are unemployed.\n  - In countries of southern Europe, one in every five people cannot find work.\n  - In countries of southern Europe, one in every two young people cannot find work.\n- Public debt among advanced economies: ratio of debt to GDP expected to hit 109 percent next year—the largest ratio since World War II.\n- Most countries’ fiscal adjustment pace this year: about 1 percent of GDP on average.\n- IMF membership: 188 countries.\n- IMF resource boost noted: more than $430 billion."
    },
    {
      "heading": "Short-run growth — diagnosis and policy calibration",
      "content": "- Core premise: in the short run demand matters most for growth and jobs; monetary policy has been deployed (very low nominal interest rates) and may need to go further in some cases, but cannot do the job alone.\n- Three “brakes” holding back growth:\n  - The fiscal brake\n    - Large legacy public debt requires credible medium-term plans to lower debt.\n    - Adjustment should be gradual and steady for most countries; some under severe market pressure must move faster.\n    - If growth is worse than expected, countries should stick to announced fiscal measures rather than announced fiscal targets (i.e., avoid fighting cyclical declines in tax revenues or cyclical increases in spending).\n    - Current pace: most countries moving at about 1 percent of GDP on average.\n  - The banking brake\n    - Banks remain over-leveraged and need to shed excess assets preferably by raising capital rather than cutting lending.\n    - Expectation: large banks based in the European Union to shed as much as $2.6 trillion by the end of next year, or 7 percent of total assets.\n    - Only a quarter of that reduction is coming from reduced lending.\n    - Effect on euro-area credit supply is projected at 1.7 percent of credit outstanding over two years.\n    - When bank health returns, borrowing costs should fall and monetary policy transmission improve.\n  - The housing brake\n    - Excess housing stock and household debt (notably in the United States, Ireland, Spain) weigh on recovery.\n    - Excess stock is working itself out due to little new investment; still need bolder programs to reduce debt burdens, defaults, and foreclosures.\n    - Some countries (e.g., Iceland) have made progress; others (e.g., the United States) need to do more.\n- Synthesis: banking and housing brakes are easing; fiscal brake must be applied in a way that minimizes harm to growth; monetary policy can remain supportive until channels are more effective."
    },
    {
      "heading": "Medium-run growth — supply-side reforms and labor markets",
      "content": "- Principle: demand fuels today’s growth, but supply determines tomorrow’s—product and labor market reforms are essential for sustained productivity and inclusive growth.\n- Product market reforms\n  - Focus on nontraded sectors (distribution, construction, regulated professions) where protection reduces competition and productivity.\n  - Example: Greek trucking protection led to importing tomatoes from the Netherlands being cheaper than domestic produce; liberalization underway.\n- Labor market reforms\n  - Main priority: address youth unemployment with well-designed policies—job-search assistance, wage subsidies, on-the-job training, apprenticeship programs.\n  - Dual labor markets (strong protection for insiders, weak for outsiders) trap young and older jobseekers; reforms should balance flexibility with worker rights and income distribution concerns and require stakeholder dialogue.\n  - Where competitiveness has been lost (e.g., southern Europe), options include boosting productivity or reducing wages; without exchange rate adjustment, wages may need to adjust in some instances.\n  - Minimum wage comparisons cited:\n    - Minimum wage in Greece is 50 percent higher than in Portugal.\n    - Minimum wage in Greece is 17 percent higher than in Spain.\n    - Minimum wage in Greece is 5-7 times higher than in Romania and Bulgaria.\n- Projected gains from reforms\n  - IMF preliminary analysis for euro-area countries: over five years, large-scale product market, labor and pension reforms could boost GDP by 4½ percent.\n  - Synchronized reform efforts magnify gains—importance of coordinated action."
    },
    {
      "heading": "Centrality of cooperation — global rebalancing, financial reform, safety nets, and solidarity",
      "content": "- Rebalancing the global economy\n  - Balanced growth requires surplus countries (e.g., some emerging markets with external surpluses such as China) to shift more toward domestic demand so global surpluses shrink alongside global deficits.\n  - Advanced economies need to export more; others need enough domestic demand to buy.\n  - Low-income countries remain vulnerable and need urgent help to implement sound policies and avoid financial ruin.\n- Financial sector reform\n  - Need a financial system that serves societal interests; progress under Basel III is noted.\n  - Ongoing work on shadow banking is important.\n  - Implementation of agreed reforms and coordinated regulation and taxation are necessary to avoid arbitrage.\n  - Switzerland cited as imposing capital requirements above Basel III while maintaining a thriving financial sector.\n- Global financial safety net\n  - Recent European “firewall” efforts commended.\n  - IMF membership decision to boost resources by more than $430 billion seen as a major step in global solidarity.\n- Solidarity within countries\n  - Social partnership and inclusive policymaking facilitate fair sharing of growth gains and adjustment pains and ensure political buy-in and social cohesion."
    },
    {
      "heading": "Policy recommendations and prescriptions (implicit and explicit)",
      "content": "- Short-run\n  - Keep monetary policy supportive; consider additional easing in some cases.\n  - Calibrate fiscal adjustment: adopt credible medium-term debt-reduction plans; apply adjustment gradually and country-specifically; prioritize announced fiscal measures over rigid targets when growth disappoints.\n  - Strengthen bank balance sheets primarily through capital raising rather than lending retrenchment.\n  - Implement bolder programs to reduce household debt, defaults, and foreclosures where housing overhang persists.\n- Medium-run\n  - Pursue product-market liberalization in nontraded sectors to raise productivity.\n  - Reform labor markets to reduce duality and tackle youth unemployment via targeted programs (job-search assistance, wage subsidies, training, apprenticeships).\n  - Where competitiveness is eroded, combine productivity-raising reforms with wage adjustments where necessary.\n  - Coordinate reforms across countries to magnify gains.\n- International cooperation\n  - Encourage surplus countries to rebalance toward domestic demand.\n  - Complete and implement financial sector reforms (Basel III, shadow banking regulation) consistently across jurisdictions.\n  - Strengthen the global financial safety net and IMF resources to buffer against shocks.\n  - Protect low-income countries through concerted assistance to prevent economic disaster."
    },
    {
      "heading": "Conclusion",
      "content": "- Strong, sustained, balanced, and inclusive growth is achievable by reconciling stability and growth through calibrated domestic policies and international cooperation.\n- The IMF’s role: to stand with its 188 members to seek stability and growth as foundations for a better future.\n- Closing thought: “growth and stability are not mutually exclusive—it is not ‘either/ or’—and we can design a path that reconciles them both.”\n\nSource: Christine Lagarde, \"Anchoring Stability to Sustain Higher and Better Growth,\" speech delivered at the University of Zurich, May 7, 2012.\n\n---\n\n Content in this bundle\n\n- 050712apdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 050712cpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 050712jpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 050712rpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Switzerland and the IMF\n- Greece and the IMF\n- United States and the IMF\n- Speeches\n- PRESS CENTER\n- Christine Lagarde\n- Press Release-- IMF Managing Director Christine Lagarde Calls for Anchoring Stability to Sustain Higher and Better Growth\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp050712"
    }
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    "Authors: Christine Lagarde Managing Director",
    "Published: May 7, 2012",
    "Speech by Christine Lagarde, Managing Director, International Monetary Fund, University of Zurich, Zurich, May 7, 2012. As prepared for delivery.",
    "Central question: how to achieve solid, sustained, balanced, and inclusive growth that spreads gains broadly—reconciling stability and growth rather than choosing one over the other.",
    "Key framing: three focal issues—short-run path to growth, medium-run path to growth, and the fundamental importance of international cooperation.",
    "Trade accounts for 94 percent of Switzerland’s GDP.",
    "IMF estimates global growth to be about 3½ percent this year, with advanced economies at 1½ percent (including a mild recession in the euro area).",
    "The output gap in advanced economies remains close to 4 percent this year on average.",
    "Emerging markets and developing countries expected growth: 5¾ percent.",
    "Global unemployment and youth:",
    "Public debt among advanced economies: ratio of debt to GDP expected to hit 109 percent next year—the largest ratio since World War II.",
    "Most countries’ fiscal adjustment pace this year: about 1 percent of GDP on average.",
    "IMF membership: 188 countries.",
    "IMF resource boost noted: more than $430 billion.",
    "Core premise: in the short run demand matters most for growth and jobs; monetary policy has been deployed (very low nominal interest rates) and may need to go further in some cases, but cannot do the job alone.",
    "Three “brakes” holding back growth:",
    "Synthesis: banking and housing brakes are easing; fiscal brake must be applied in a way that minimizes harm to growth; monetary policy can remain supportive until channels are more effective.",
    "Principle: demand fuels today’s growth, but supply determines tomorrow’s—product and labor market reforms are essential for sustained productivity and inclusive growth.",
    "Product market reforms",
    "Labor market reforms",
    "Projected gains from reforms",
    "Rebalancing the global economy",
    "Financial sector reform",
    "Global financial safety net",
    "Solidarity within countries",
    "Short-run",
    "Medium-run",
    "International cooperation",
    "Strong, sustained, balanced, and inclusive growth is achievable by reconciling stability and growth through calibrated domestic policies and international cooperation.",
    "The IMF’s role: to stand with its 188 members to seek stability and growth as foundations for a better future.",
    "Closing thought: “growth and stability are not mutually exclusive—it is not ‘either/ or’—and we can design a path that reconciles them both.”",
    "[050712apdf (PDF)](/-/media/websites/imf/imported/external/arabic/np/speeches/2012/050712apdf.pdf){rel=\"external\" type=\"application/pdf\"}",
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    "[Switzerland and the IMF](http://www.imf.org/external/country/CHE/index.htm)",
    "[Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm)",
    "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)",
    "[Press Release-- IMF Managing Director Christine Lagarde Calls for Anchoring Stability to Sustain Higher and Better Growth](https://www.imf.org/external/np/sec/pr/2012/pr12160.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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