WASHINGTON--International Monetary Fund boss Christine Lagarde Tuesday
warned that financial-stability risks have returned to the global
economy with a vengeance, fueling "great uncertainty" for the world
economy.
Lagarde urged European policy makers to take decisive steps to break
free of the crisis, including "very accommodating" monetary policy,
direct injection of the region's bailout funds into weak banks, and
where possible, growth-friendly policies.
"Tensions are on the rise again and financial-stability risks have
once more move front and center," the IMF managing director said in
prepared remarks for a speech at the Center for Global Development.
"Great uncertainty hangs over global prospects," she said.
Germany, Europe's economic powerhouse, has opposed using Europe's
bailout funds for direct recapitalization of banks, including in Spain
where the IMF said the financial industry needs billions of euros to
stay afloat. Instead, Berlin wants to lend Madrid the cash, which
economists say would push up the country's debt burden and could fuel
market concerns about the ability of the government to pay its
obligations.
Lagarde said developing countries should prepare for a potential
worsening of the crisis by rebuilding buffers against further outbreak
of Europe's woes. "Those with fiscal space should prepare to use it,
especially if conditions continue to deteriorate," she said.
Lagarde also said countries should tax carbon-dioxide emissions to
help limit human-generated greenhouse gases thought to contribute to a
change in the earth's climate and to raise revenues in difficult
budget times. For example, she said the U.S. could raise over $1
trillion in new cash over a decade if it implemented a $25 a ton
carbon tax. The head of the IMF also said there should be
international aviation charges for emissions to help developing
countries pay for strategies meant to protect against impacts from
potential climate changes.
The head of the IMF also said growth policies should ensure they are
inclusive. "Without this, the social threads that bind society
together can rip apart, with devastating economic consequences."
Write to Ian Talley at ian.talley@dowjones.com
(END) Dow Jones Newswires
June 12, 2012 10:14 ET (14:14 GMT)
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