The head of the International Monetary Fund yesterday warned world leaders that they are running out of time to prevent another global slump and urged them to rediscover a "collective momentum" in order to head off disaster.
Speaking in advance of the opening of the IMF's annual conference in Washington, Christine Lagarde repeated warnings from her officials earlier in the week that the international economy is entering a "dangerous phase". She also drew a contrast with the situation in the wake of the last financial crisis in 2009, cautioning that "the path for recovery is narrower than it was three years ago".
Speaking against a backdrop of plummeting global stock markets, Ms Lagarde said global policy should not be driven by investor panic. The IMF's prescriptions, she said, "will not be dictated by the day-to-day variation of the Dow Jones, the Nasdaq, the Cac or the Dax".
She also asserted that investors in sovereign bonds were not giving nations enough credit for the efforts they have made to get their public finances under control. Referring to the eurozone, she said: "There are countries that have taken very bold measures to address their deficit situation. That goes very much under the radar screen... We are seeing very good things coming out of that zone [that] are not very much not recognised by the markets."
But Ms Lagarde did insist that European governments must act swiftly to recapitalise their banks, saying "three years down the road [from the last crisis] we are still not advanced as we should be in terms of financial reform. This is fuelling a lack of confidence. There has been huge progress, but more needs to be done". This week the IMF identified a potential €200bn (£176bn) hole in the European banking sector.
Asked about the slow response of European policymakers to the sovereign debt crisis, Ms Lagarde stressed the importance of national parliaments throughout Europe ratifying the emergency measures taken by national leaders in July. "We are no longer in Napoleonic times when a leader could snap his fingers and make something happen," she said.
Ms Lagarde also emphasised that the response of Europe to the crisis had significant political implications. She said: "It is not only about economics, about finance, it is also about political, collective destiny from countries that have spent centuries fighting each other and are determined to stay together." She did, however, stress that "time is of the essence... All our members... need to address the current crisis together. It is about taking politics to its highest level".
Ms Lagarde's warnings were echoed yesterday by the head of the World Bank, Robert Zoellick, who said that financial turmoil in the developed world was putting poorer countries at risk. Also speaking in Washington, he said: "Europe, Japan, and the United States must act to address their big economic problems before they become bigger problems for the rest of the world."