## Transcript of an Interview with IMF Managing Director Christine Lagarde with the Leading European Newspapers Association

_IMF News, April 12, 2017_

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## Bibliographic details
- Published: April 12, 2017

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### Political uncertainty, elections, and protectionism
- Growth is picking up, including in Europe, but political uncertainties (including what Lagarde calls the “protectionist sword”) are a major concern.
- France:
  - The uncertain outcome of the French elections matters because of France’s role and size in the euro area and because some ideas discussed could disrupt the EU architecture.
  - “The sooner that uncertainty is removed, and I guess it will have to wait until May 7th, the better it will be for the global economy, and of course, for the euro area economy.”
  - The fate of the euro is “clearly one of the debates” in the French presidential elections and affects confidence and stability in the euro area.
- United States:
  - The Trump administration had been in place “for more than two month” at the time of the interview; Lagarde observes a “great discrepancy between the pre-election rhetoric and the actual steps that have been taken.”
  - Her approach: focus on actual measures, policy determination, and implemented laws rather than speculation.
  - At the G20 and in discussions with the US Treasury, she sees “the willingness to work together” and is “reasonably optimistic” that cooperation can clarify confusion and misunderstanding.
- Trade:
  - Distinguishes between protectionism and the concept of “free, fair and global trade.” The IMF intends to discuss and define what is meant by “fair” at the IMF/WB spring meetings.

### US fiscal expectations and global effects
- Expectations from an expected US fiscal stimulus and tax reform have raised market optimism and asset valuations:
  - “Asset prices are at their highest in the last 8 years or so.”
- Outcomes remain uncertain: timing, implementation, spillovers to the real economy, and the magnitude of private-sector investment.
- Potential positive transmission if private investment and R&D financing increase.

### Germany: external imbalances and investment
- Excessive external imbalances should be reduced, tailored to each country’s circumstances.
- Germany:
  - Lagarde: “Yes” — Germany should do more and invest more in infrastructure for itself and Europe.
  - Justified surplus: “4% would perhaps be justified, but 8 % is not.”
  - Positive notes: Germany has begun investing (including refugee funding and infrastructure) and financially commits “0.7 percent of GDP to global development.”
  - Recommendation: more investment, e.g., in broadband.

### Greece: IMF participation, reforms, and debt sustainability
- Two dimensions for any IMF financing: short-term program alignment with ESM and the longer-term fiscal path for debt sustainability analysis.
- IMF stance and conditions:
  - Any IMF participation would be based on fiscal path and the IMF’s debt sustainability analysis.
  - “In the long term, we believe that a 1.5% primary surplus is sensible given all that the economy has gone through, and given the Greeks' capacity to reform.”
  - If Europeans determine differently, that must be taken into account, but the IMF will not adopt unreasonable forecasts or unjustifiable macro frameworks.
  - IMF participation is “plausible” if significant reforms are legislated and if debt is restructured to accommodate IMF debt sustainability rules.
  - “The volume of our possible financial commitment is not going to be necessarily the most important contribution... It is more our discipline, our integrity, and our expertise... that is actually a greater value to Europeans.”
  - Without debt restructuring that achieves sustainability “in accordance with the IMF’s rules and on the basis of reasonable parameters, we will not participate.”
  - Lagarde: “There is no question in our mind that a degree of debt restructuring is needed.”
- Timing: IMF is taking additional time to secure “two legs” for the program—solid reforms and sustainable debt—so staff will return to Greece to negotiate and put agreements on paper.

### Spain: recovery, labor market duality, and remaining vulnerabilities
- Spain has shown strong recovery momentum:
  - “Spain has growth now; a growth momentum that is higher than anywhere else in the EU--except in UK perhaps--and certainly the highest in the euro area.”
- Remaining challenges and statistics (as cited in the interview):
  - Unemployment rate at 18%
  - Young unemployment rate at 40%
  - Public debt at 100% and still growing
  - High external debt and risk of poverty and lack of job stability
- Key issues and recommendations:
  - Labor market duality (short-term exposed vs. long-term protected contracts) needs to be addressed.
  - Continued reforms are essential; Spanish success owes much to determination on reforms, addressing banking sector instability and non-performing loans, and cooperation among ESM, the European Commission, and the IMF.

### Eurozone resilience and deeper integration
- The euro area is better equipped than in 2008: presence of the European Stability Mechanism (ESM), strengthened supervision, and improved banking regulation.
- Remaining structural needs for resilience:
  - A clear, efficient, and respected Stability and Growth Pact (more so than today).
  - A common joint fiscal policy.
  - The ability “to raise and manage debt on a euro basis” (Lagarde clarifies this is not a direct endorsement of Eurobonds and leaves details to European leaders).
  - Progress toward completing the banking union.
  - Concept raised: one day having a single Finance minister (as advocated by Jean-Claude Trichet).
- On further integration:
  - If no “unpleasant surprise” from French and German elections, a move toward more integration would be consistent with the monetary union’s initial proposal, balanced with respect for national cultures and traditions.

### IMF policy views and recommendations
- On excessive imbalances, inequality, and financial instability: all three are harmful to stability and sustainable growth; the IMF will call them out without moralizing language.
- Emphasis on cooperation and demonstrating the benefits of cooperation at international forums.
- On fiscal coordination in the euro area:
  - Question posed: why not agree on a global fiscal impulse of 0,5% of GDP in 2017 as recommended by the IMF and the European Commission?
  - Lagarde’s answer: euro area architecture reform is not finished; fiscal measures are taken at the national level. She expresses hope that the Juncker plan will demonstrate willingness to have a larger common budget beyond limited investment budgets.

_Transcript dated April 12, 2017. IMF Communications Department; MEDIA RELATIONS; PRESS OFFICER: Andreas Adriano. Phone: +1 202 623-7100Email: MEDIA@IMF.org_

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## References

- [France and the IMF](http://www.imf.org/external/country/FRA/index.htm)
- [Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)
- [Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm)
- [Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2017/04/17/tr041217-transcript-of-an-interview-with-imf-lagarde-with-lena_