IMF’s Lagarde Urges Quick Implementation of European Debt Plan

Christine Lagarde, the new head of the International Monetary Fund, urged Europeans to quickly implement the measures they crafted last week as a firewall against the region’s debt crisis to avoid another surge in borrowing costs.

“Turbulence could easily resurface,” even though the agreement by the 17-country euro region’s leaders “has been welcomed by financial markets,” Lagarde said according to remarks prepared for delivery in New York today. “For this reason, it is essential that the summit’s commitments should be implemented quickly.”

Speaking three weeks after starting as the IMF managing director, Lagarde also urged U.S. leaders to take “bold fiscal action” to reduce the country’s deficit and to agree on raising the debt limit before an Aug. 2 deadline. Any fiscal shock in the U.S. “could have serious spillovers on the rest of the world,” 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.

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., Lagarde said in her speech at the Council on Foreign Relations, a non-partisan research organization and publisher.

At the same time, because the U.S. faces the risk of a “another jobless recovery,” the fiscal consolidation should not happen too fast, Lagarde said. She recommended measures to slow the rise in unemployment and aid the housing market.

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.

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