IMF to Germany: Give Greece a Break!
Greece and Spain should get more time reduce their budget deficits instead of being forced to start aggressive austerity measures that may deepen their economic troubles, the International Monetary Fund said on Thursday. The IMF is worried that with Greece’s political and social tensions near breaking point, budget pressures may prove counterproductive. “It is sometimes better to have a bit more time,” IMF managing director Christine Lagarde said, who asked that Greece be given an extra two years to meet its budget targets. “That is what we advocated for Portugal; this is what we advocated for Spain; and this is what we are advocating for Greece.”
Lagarde’s comments are likely to add to the peer pressure on Germany, Europe’s largest creditor country, to be more flexible in dealing with Greece. Germany has insisted that cutting down on debt-reduction goals only hurts confidence. “The IMF has time and again said that high public debt poses a problem,” German finance minister Wolfgang Schaeuble said, according to Reuters. “So when there is a certain medium-term goal, it doesn’t build confidence when one starts by going in a different direction.”
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The IMF does not have similar patience for Europe, though, insisting policymakers work harder and quicker at bringing about fiscal cohesion in the zone in order to fix the economic uncertainty that is hurting global growth. The world body also warned policymakers not to relax after the recent respite in borrowing costs for countries such as Spain and Italy and worried that the European slowdown would affect developing countries.
At the IMF and World Bank meeting in Tokyo, Europe also wants to deflect some of the attention to the difficulties being faced by the U.S. in addressing its “fiscal cliff” of automatic spending cuts and tax increases that is set to take effect next year unless the U.S. Congress acts.