New International Monetary Fund head Christine Lagarde acknowledged Monday that Greece has already made strides in reducing its deficit, but added that more needs to be done, not only by the government, but also with support from the Greek opposition.
The former French finance minister, meeting with reporters at the IMF headquarters in Washington less than a week after she took over, suggested that Italy, while having some “excellent” financial indicators, faces issues at the moment “which are essentially market-driven.”
She also repeated her past comments on the possibility of US government debt default, saying it would create “huge, massive difficulties.”
Her remarks came as the euro-currency's debt crisis threatened to spread from Greece to Italy and Spain. Eurozone finance ministers held talks for more than eight hours in Brussels on Monday as markets went into a tailspin, risk premiums on Italian sovereign bonds soared and European stockmarkets plunged.
Eurozone finance ministers signaled Monday they would grant their bailout fund greater powers of intervention to prevent the crisis from spreading, but postponed closing on an agreement until they could meet again before the end of July.
The IMF, which is responsible for overseeing and helping maintain international financial stability, on Friday released 3.2 billion euros (4.47 billion dollars) in emergency loans to Greece to help finance the country's recovery from its debt crisis.
With the latest release, the IMF has distributed 17.4 billion euros of a 110-billion-euro plan set up by itself and the European Union to contain Greece's fiscal crisis.
Lagarde said it was a “significant achievement” that Greece has reduced its deficits and achieved fiscal consolidation within the range of 5 percentage points of gross domestic product (GDP).
“Equally, we all know this is not sufficient, that more work needs to be done, and that the solution to the ongoing problems will need to be worked out between partners,” she said.
Lagarde noted the importance of all Greek political representatives, including those of the opposition, cooperating on the way forward.
The Greek government has pushed through austerity measures to meet international preconditions for financial help, but only against a backdrop of huge public and legislative resistance and violent street protests by opposition forces
“That is ongoing work, work in progress, and what will come out of that will be certainly discussed further as work gets done,” Lagarde said.
On Italy, Lagarde said that Rome's primary deficit is one of the lowest, and has the particular characteristic that “a lot of the debt is held domestically.”
“Clearly, (Italy) is facing issues at the moment, which are essentially market-driven, which I'm sure the Italian government together with its partners will be very attentive to,” she said.
But she added that it was clear that “Italian growth has to improve.” She said stronger growth was an “essential” ingredient in boosting the effect of a fiscal consolidation and austerity package that already represents more than 2 per cent of GDP.
The goal is to bring Italy back down to a deficit of 3 per cent of GDP, a key standard for eurozone membership.
The eurozone debt crisis has nearly overshadowed that of the United States, where President Barack Obama on Monday warned of a possible second recession if he and congressional lawmakers could not reach a deal to increase the US debt limit and reduce its deficit. The US faces default on August 2 if no agreement is reached.
Asked about growing concentration of wealth at the top of US society, Lagarde did not speak specifically to the US situation, saying she had not yet been adequately briefed.
But she noted that she had given her views elsewhere on the US debt ceiling and the risk of default, and “on the huge, massive difficulties that would arise from that, so much so that it is inconceivable to me that we would ever end up there.” - Sapa-dpa