The European crisis is escalating and threatens every economy in the world, IMF managing director Christine Lagarde warned on Thursday.
“The issues that we have in front of us now are not just a concern for the eurozone, not just a concern for the European Union, not just a concern for the advanced economies,” she told a forum on women in politics at the US Department of State. “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.”
With Europe’s leaders still struggling after months to come up with a comprehensive fix to end the crisis, Lagarde said the resolution would involve efforts from all countries and regions.
She added, however: “Clearly it’s going to have to start from the core of the crisis at the moment, which is obviously the European countries, and in particular the countries of the eurozone.”
She said the 17-nation eurozone was not “properly completed” after its establishment in 1999 because disciplined fiscal and monetary policies of the EU were not fully laid down and enforced.
At a summit on Friday last week, eurozone leaders agreed to tough new standards for fiscal spending and borrowing in hopes of quelling market worries that one or more of the group could default on their debt and fracture the single-currency zone.
With markets now concerned that pact is frail and has left many questions unanswered, an IMF official earlier on Thursday called for swift action on it.
“It is important now to implement the summit’s decisions. That is the next step,” IMF spokesman David Hawley said.
European Central Bank President Mario Draghi also warned on Thursday the EU needs to quickly implement measures to tighten budget discipline to resolve the debt crisis, as a successful Spanish bond sale sent shares and the euro higher.
Russia, meanwhile, signaled it was ready to contribute up to US$20 billion to an EU-led effort to boost the funds available to the IMF for rescue programs, which would benefit weaker eurozone states.
Draghi called on EU governments to quickly follow through on their pledge at a summit last week to agree to drastically tougher budget rules.
“The decisions of the European Council summit, together with the [measures] approved recently by the European Parliament, are a breakthrough for clear fiscal rules in our monetary union,” Draghi told a congress in the German capital.
“However, the crisis has not ended yet. It is now important not to lose momentum and to swiftly implement all those decisions that have been taken to put the euro area economy back on course,” he said.
After non-euro Britain blocked putting budget rules in an EU-wide treaty, the other 26 EU member states signaled their willingness to draw up a “new fiscal compact” imposing the stricter budget rules.
The pact should be finalized at an EU summit to be held “end January-early February,” European Council President Herman Van Rompuy said on Thursday.
The Czech Republic and Hungary warned however they were against the pact, including measures to harmonize tax rates, a perennial issue of dispute among EU nations.