Lagarde warns of 'lost decade' unless European crisis is fixed

THE IMF’S MANAGING director Christine Lagarde has warned that the global economy could be facing “a lost decade” of progress, unless European leaders can act conclusively to put an end to the debt crisis.

Speaking in China, Lagarde said the repeated turmoil in the eurozone, where successive agreements have failed to draw a line under the crisis, meant the world’s economies could face ten years of stagnation – or worse still, a prolonged recession.

“Our sense is that if we do not act boldly, and if we do not act together, the economy around the world runs the risk of [a] downward spiral of uncertainty, financial instability, and potential collapse of global demand,” BBC News quotes Lagarde as saying.

“We could run the risk of what some commentators are already calling the lose decade,” she added.

Bloomberg reports Lagarde also said that because the world was becoming “increasingly interconnected… no region or country can go it alone.”

The former French finance minister also said that China should try to increase the size of its domestic markets and to allow its currency to gain value, thereby weakening its grip on the world’s export markets.

China’s “fiscal policy is appropriately moving back to balance, but if the growth outlook deteriorates significantly, it could become the first line of defence,” the Wall Street Journal quoted her as saying.

More established countries should meanwhile be wary of their “special responsibility” to restore confidence in world markets.

Her comments came in the hours after Italian prime minister Silvio Berlusconi announced his plans to resign from office as soon as his country had enacted another package of tough budget laws.

Those laws are an attempt at restoring market confidence in the Italian government, for whom the cost of borrowing has risen to new record levels this week.

This morning the Italian government would have to pay 6.77 per cent interest on a 10-year bond – creeping closer to the 7 per cent barrier which is likely to trigger the need for a bailout from the EU and IMF.

Read: Berlusconi to go – but what now for Italy?

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