IMF chief warns of social unrest in Europe

The new head of the International Monetary Fund warned European leaders of the possibility of social instability as a result of the eurozone's economic problems.

Speaking in New York, where she is now based, Christine Lagarde, the former French finance minister, said that the recent economic turbulence which has seen Greece, Portugal and Ireland suffer debt crises – and the spectre hang over Italy and Spain – could "easily resurface" despite the lift in the markets after last week's €109bn (£96bn) bailout package for Greece.

Referring to the political upheaval in North Africa and the Middle East earlier this year, she said: "Social problems are of major concern to advanced economies, too. The young in particular are having a hard time finding work – with potentially lifelong implications in terms of employability and income. At the same time, the older generations are fighting to protect their health and pension benefits. Combine the two and we may face a 'clash of generations'."

She did praise European political leaders for their recent action and said that arguing Republicans and Democrats in Washington needed to follow their example and reach agreement, or the global economy would suffer.

"I'm hopeful that the political courage shown by European leaders will soon be followed by bold fiscal action in the US," she said. "The clock is really ticking. And people have to really find the appropriate solution." American policymakers have a deadline of 2 August before the US defaults on its debt.

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