IMF’s Lagarde Says Failure on U.S. Debt Limit Will Be a ‘Shock’

Christine Lagarde, the new head of the International Monetary Fund, said failure to find agreement on raising the U.S. debt ceiling will jeopardize global economic stability.

The former French finance minister said today on ABC’s “This Week with Christiane Amanpour” that the IMF is “concerned” and “very much hoping” American lawmakers will compromise on raising the debt limit before an Aug. 2 deadline. She said she expects an agreement, adding that she can’t “imagine for a second” that the U.S. would default.

A default “would be a real shock” to the world’s largest economy, said Lagarde, who took her post July 5. It would cause interest rates to jump, “stock markets taking a huge hit, and real nasty consequences, not just for the United States, but for the entire global economy, because the U.S. is such a big player and matters so much for other countries,”

President Barack Obama is meeting with congressional leaders today to break a partisan impasse over reducing the budget deficit and increasing the government’s $14.3 trillion debt limit. The Treasury Department has said the ceiling must be raised before Aug. 2 to avoid a default.

Asked about the “wounds” at the Washington-based IMF after the arrest and resignation of former chief Dominique Strauss-Kahn, Lagarde described employees’ feelings as “a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness as well.”

Strauss-Kahn, who faces charges including attempted rape, has pleaded not guilty. Manhattan District Attorney Cyrus Vance Jr. still has to decide whether to drop the prosecution on concern about the credibility of the hotel maid who accused Strauss-Kahn.

Lagarde, 55, was asked to abide by the highest ethical principles and will undergo IMF training next week, she said.

She shared her own rule when it comes to ethics: “I always think to myself: ‘Would my mother approve of that?’ And if she did not, then there’s something wrong.”

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.