IMF’s Lagarde Fears Japanization of Eurozone

Christine Lagarde, the head of the International Monetary Fund, has warned that the eurozone is displaying the symptoms of Japan’s longstanding economic problems and needs fresh moves to avert the threat of recession.

With the IMF’s annual meeting in Washington likely to be dominated by the failure of Europe to emerge from the financial crisis of six years ago, Lagarde dropped a broad hint that she wanted Germany to run down its budget surplus to boost growth. She said there was a “serious risk” of a recession in the eurozone if nothing was done to avert a new downturn.

Her comments came after bad economic news from Germany and as the UK chancellor, George Osborne, said the stalling of the eurozone economy was already having an adverse impact on Britain.

Asked if the eurozone was the new Japan, a country that has never fully recovered from the financial crash at the end of the 1980s, Lagarde said: “We have alerted to the risks of persistently low inflation, which was one of the attributes of Japan.”

The IMF chief said measures had already been taken by the European Central Bank to “resist and reverse” the slide towards deflation, but she added: “More, we hope, will be done.”

Speculation is growing that the ECB will adopt quantitative easing – the money-creation programme used by the US Federal Reserve, the Bank of England and the Bank of Japan – over the next few months.

But Lagarde said she wanted to see fiscal policy used to supplement the ECB’s efforts. She said: “We have also alerted to the risk of recession in the eurozone. That has been identified by us at between 35-40%, which is not insignificant.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza