IMF’s Lagarde Says Clock Ticking for U.S., European Policy Makers on Debt

Christine Lagarde, the new head of the International Monetary Fund, urged U.S. policy makers to quickly agree on a fiscal plan and avoid default, while warning Europeans that they are also under pressure to implement their own measures to alleviate the debt crisis.

“They don’t have the luxury of time, there is an expectation that things now have to happen and have to be delivered,” Lagarde, speaking in New York, said of Europeans. In the U.S. “the clock is irremediably ticking and people have to try to find the appropriate solution,” she said.

Sovereign debt is one of three major challenges to the world economy cited by Lagarde, along with growth and social instability. European policy makers last week agreed to new aid for Greece and widened the scope and power of their bailout fund, while in the U.S., Republicans and Democrats have been unable to find a fiscal compromise to avert a possible default next month.

Speaking three weeks after starting as the IMF managing director, Lagarde said “there is still a level of uncertainty” in markets about the firewall Europeans tried to erect against the debt crisis. That’s because the agreement is “complicated” and because “there is still work to be done,” she said.

“What from the IMF point of view remains to be done is clearly implementation” by Greece of measures attached to a first 110-billion euro ($159 billion) package, while governments that signed off on the new rescue plan last week must act as well, she said in her speech at the Council on Foreign Relations, a non-partisan research organization and publisher.

Default ‘Very Serious’

A default or a significant downgrade of U.S. sovereign debt by credit agencies would be a very, very, very serious event” for the U.S. as well as for the global economy, she warned.

In the written text of her remarks, Lagarde said that while measures to narrow the deficit in general reduce growth in the short run, credible measures would have a limited effect on demand in the U.S. At the same time, because the U.S. faces the risk of a “another jobless recovery,” the fiscal consolidation should not happen too fast, she said in the prepared remarks.

Lagarde, 55, was named the first female head of IMF last month to take on Europe’s debt crisis and balance the demands of fast-growing emerging nations with the needs of a recovering developed world.

The former French finance minister hinted that she may seek more money for the IMF. The decision by the group of 20 nations in 2009 to triple IMF resources “was exactly the right move,” she said. “The question is do we still have the level of resources that is now needed and appropriate to address the crises?” she asked. Later she added that the institution ‘could do with more.”

She said this issue would be revisited “in the not-so- distant future.”

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

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

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IMF’s Lagarde Says Clock Is ‘Ticking’ for U.S.

Scott Eells/Bloomberg

Christine Lagarde, managing director of the International Monetary Fund (IMF), said that a U.S. default "would be terrible" for the U.S. and for the economy at large.

Christine Lagarde, managing director of the International Monetary Fund (IMF), said that a U.S. default "would be terrible" for the U.S. and for the economy at large. Photographer: Scott Eells/Bloomberg