IMF calls for unity to save world from 1930s repeat

Fairfax Media

THE world risks sliding into a 1930s-style slump unless countries settle their differences and work together to tackle Europe's debt crisis, the head of the International Monetary Fund says.

In a week that brought an escalation in the trade battle between China and the US and a deepening of the diplomatic rift between Britain and France, Christine Lagarde issued her strongest warning yet about the health of the global economy and said if the international community failed to co-operate the risk was of ''retraction, rising protectionism, isolation''.

''This is exactly the description of what happened in the '30s and what followed is not something we are looking forward to,'' the IMF managing director said.
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Her call came amid concern that in 2012 Europe will slide into a double-dip recession, with knock-on effects for the global economy. ''The world economic outlook at the moment is not particularly rosy. It is quite gloomy.''

Since arriving in Washington mid-year, Ms Lagarde has cut forecasts for global growth next year and is putting pressure on countries outside the euro zone to play their part in containing Europe's sovereign debt crisis.

An IMF plan agreed to in Brussels last week involves obtaining €200 billion ($261 billion) from European countries and asking the rest of the world to contribute. Beijing has been reluctant to join in a rescue of the euro zone, saying it is up to Europe to sort out its problems.

Speaking at the State Department, Ms Lagarde said: ''There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating.

''It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking some action.''

There were strong attacks on Britain this week from the French Finance Minister, Francois Baroin, and the governor of the French central bank, Christian Noyer, in what appeared to be a concerted attempt by Paris to provoke a war of words with Britain after it decided to veto a new European Union treaty.

Mr Noyer, speaking amid financial market speculation that the Standard & Poor's ratings agency was about to strip France of its coveted AAA rating, said Britain's credit rating should be downgraded first.

He said a downgrade for France ''doesn't strike me as justified based on economic fundamentals. Or if it is, they should start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.''

In Washington, the US Commerce Secretary, John Bryson, signalled the US would retaliate against Beijing's decision to put tariffs on high-performance US cars imported into China.

''The United States has reached a point where we cannot quietly accept China ignoring many of the trade rules,'' he said.