{
  "title": "\"Global Risks Are Rising, But There Is a Path to Recovery\": Remarks at Jackson Hole, By Christine Lagarde, Managing Director, International Monetary Fund",
  "publication": "IMF News, August 27, 2011",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp082711",
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  "summary": "Event: Jackson Hole conference; speaker: Christine Lagarde, Managing Director, International Monetary Fund.",
  "authors": [
    "Christine Lagarde"
  ],
  "publishDate": "2011-08-27",
  "sections": [
    {
      "heading": "Context and framing",
      "content": "- Event: Jackson Hole conference; speaker: Christine Lagarde, Managing Director, International Monetary Fund.\n- Date: August 27, 2011.\n- Core framing:\n  - Global economy continues to grow, yet not enough.\n  - Some causes of the 2008 crisis have been addressed, yet not adequately.\n  - There remains a path to recovery, yet time is limited.\n- Two-year retrospective: \"Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties.\""
    },
    {
      "heading": "Major findings and risks",
      "content": "- Balance-sheet linkages: Weak growth and weak balance sheets of governments, financial institutions, and households are feeding negatively on each other.\n- Deterioration in confidence: Policymaker hesitation has aggravated risks and increased the likelihood the fragile recovery could be derailed.\n- New dangerous phase: Recent developments (summer 2011) indicate increased downside risks and urgency for action.\n- Rebalancing insufficient: Progress on both domestic and global rebalancing has been \"timid at best.\"\n- Global interdependence: \"Decoupling is a myth\"—advanced country recession would affect emerging markets; low-income countries remain vulnerable."
    },
    {
      "heading": "The balance sheet problem (diagnosis)",
      "content": "- Root cause: Too much debt and leverage in key advanced economies; financial practices magnified, disguised, and fragmented risk; households over-borrowed.\n- Long adjustment: Housing and financial crises take a long time to work off and require decisive action.\n- Current headline problems: sovereigns in most advanced economies, banks in Europe, and households in the United States.\n- Policy instruments at risk: Continued growth loss would worsen balance sheet problems, threaten fiscal sustainability, and reduce policy effectiveness."
    },
    {
      "heading": "Policy agenda (general prescriptions)",
      "content": "- Fiscal policy:\n  - Fiscal consolidation remains an imperative.\n  - Macroeconomic policies must support growth; countries must navigate between losing credibility and undercutting recovery.\n  - Each country needs a dual focus: durable measures that deliver savings tomorrow to create space to support growth today (examples: measures that change the rate of growth of entitlements, health or retirement).\n- Monetary policy:\n  - Should remain highly accommodative because \"the risk of recession outweighs the risk of inflation.\"\n  - Rationale: (i) in most advanced economies inflation expectations are well anchored; and (ii) pressures from energy and food prices are abating.\n  - Policymakers should be ready to return to unconventional tools as needed.\n- Micro-level measures:\n  - Relieve balance sheet pressures for households, banks, and governments.\n  - Address root problems to avoid a painful, drawn-out adjustment.\n  - Structural reforms to boost productivity and growth over time, while taking care not to weaken short-term demand.\n- Coordination:\n  - A new approach is required—bold political action with a comprehensive plan across all policy levers, implemented in a coordinated global way."
    },
    {
      "heading": "Europe — diagnosis and three key steps",
      "content": "- Diagnosis: Urgent need to remove uncertainty around banks and sovereigns; financial exposures are transmitting weakness and spreading fear across markets and countries.\n- Three key steps Europe should take:\n  - First: Ensure sovereign finances are sustainable.\n    - More fiscal action and more financing.\n    - Not necessarily drastic upfront belt-tightening if long-term fiscal risks (rising pension costs or healthcare spending) are addressed to create short-run space for growth and jobs.\n    - Sufficient financing can come from private or official sector—including continued support from the ECB, with full backup of the euro area members.\n  - Second: Urgent recapitalization of banks.\n    - Banks must be strong enough to withstand sovereign risks and weak growth.\n    - Most efficient solution: mandatory substantial recapitalization—seek private resources first, but use public funds if necessary.\n    - Option: mobilize EFSF or other European-wide funding to recapitalize banks directly to avoid additional burdens on vulnerable sovereigns.\n  - Third: Adopt a common vision for the eurozone’s future.\n    - Recommit credibly to a common vision built on solid foundations, including fiscal rules that actually work.\n    - Avoid ambivalence or unclear messaging that magnifies uncertainty."
    },
    {
      "heading": "United States — specific priorities",
      "content": "- Key tensions: Need to balance reducing public debt and sustaining the recovery, with special emphasis on making a serious dent in long-term unemployment.\n- Two specific fronts:\n  - First: Nexus of fiscal consolidation and growth.\n    - Credible decisions on future consolidation (revenues and expenditures) create space for growth and jobs today.\n    - Growth is necessary for fiscal credibility.\n  - Second: Halt the downward spiral of foreclosures, falling house prices, and deteriorating household spending.\n    - Possible measures: more aggressive principal reduction programs for homeowners, stronger intervention by government housing finance agencies, or steps to help homeowners take advantage of low interest rates."
    },
    {
      "heading": "Global dimension and low-income countries",
      "content": "- Emerging markets:\n  - Some key emerging economies keep domestic demand growth too slow and block currency appreciation, which is not in their or the global interest.\n  - Other emerging markets that allowed appreciations face threats from capital inflows.\n- Low-income countries:\n  - Need to protect themselves from external shocks by rebuilding policy buffers and investing in social safety nets.\n  - International community must stand ready to help."
    },
    {
      "heading": "Conclusion and call to action",
      "content": "- Summary judgment: \"Risks to the global economy are rising, but there remains a path to recovery.\"\n- Imperatives:\n  - Act now, act boldly, and act together.\n  - Coordinated action by all countries will have far greater effect than isolated actions.\n- IMF commitment: The IMF will continue to advocate for these outcomes and lend material support where requested and relevant. \n\nRemarks prepared for delivery, Jackson Hole, August 27, 2011 — Christine Lagarde, Managing Director, International Monetary Fund\n\n---\n\n Content in this bundle\n\n- 082711apdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 082711cpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 082711jpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 082711rpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- United States and the IMF\n- Speeches\n- Christine Lagarde\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp082711"
    }
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    "Authors: Christine Lagarde",
    "Published: August 27, 2011",
    "Event: Jackson Hole conference; speaker: Christine Lagarde, Managing Director, International Monetary Fund.",
    "Date: August 27, 2011.",
    "Core framing:",
    "Two-year retrospective: \"Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties.\"",
    "Balance-sheet linkages: Weak growth and weak balance sheets of governments, financial institutions, and households are feeding negatively on each other.",
    "Deterioration in confidence: Policymaker hesitation has aggravated risks and increased the likelihood the fragile recovery could be derailed.",
    "New dangerous phase: Recent developments (summer 2011) indicate increased downside risks and urgency for action.",
    "Rebalancing insufficient: Progress on both domestic and global rebalancing has been \"timid at best.\"",
    "Global interdependence: \"Decoupling is a myth\"—advanced country recession would affect emerging markets; low-income countries remain vulnerable.",
    "Root cause: Too much debt and leverage in key advanced economies; financial practices magnified, disguised, and fragmented risk; households over-borrowed.",
    "Long adjustment: Housing and financial crises take a long time to work off and require decisive action.",
    "Current headline problems: sovereigns in most advanced economies, banks in Europe, and households in the United States.",
    "Policy instruments at risk: Continued growth loss would worsen balance sheet problems, threaten fiscal sustainability, and reduce policy effectiveness.",
    "Fiscal policy:",
    "Monetary policy:",
    "Micro-level measures:",
    "Coordination:",
    "Diagnosis: Urgent need to remove uncertainty around banks and sovereigns; financial exposures are transmitting weakness and spreading fear across markets and countries.",
    "Three key steps Europe should take:",
    "Key tensions: Need to balance reducing public debt and sustaining the recovery, with special emphasis on making a serious dent in long-term unemployment.",
    "Two specific fronts:",
    "Emerging markets:",
    "Low-income countries:",
    "Summary judgment: \"Risks to the global economy are rising, but there remains a path to recovery.\"",
    "Imperatives:",
    "IMF commitment: The IMF will continue to advocate for these outcomes and lend material support where requested and relevant.",
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    "[082711rpdf (PDF)](/-/media/websites/imf/imported/external/russian/np/speeches/2011/082711rpdf.pdf){rel=\"external\" type=\"application/pdf\"}",
    "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[Christine Lagarde](https://www.imf.org/external/np/omd/bios/cl.htm)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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