Zhu Min, deputy managing director of the International Monetary Fund, said the euro zone is “moving in the right direction” to solve its debt crisis and Italy must move to implement its reforms.
“They are determined to do the things, the deficit cuts; they are determined to do structured reforms,” Zhu said at a Wall Street Journal CEO Council forum. “The only thing is the Italian government has to act, act now.”
Zhu said the IMF is pleased there are new governments in Italy and Greece and the Washington-based lender is working very closely with them. “This is obviously a starting point, but it’s a good starting point,” he said.
Mario Monti, Italy’s prime minister-designate, has struggled to get political support to form a new cabinet as investors pushed up yields on Italian bonds. Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago has led to a surge in Italian borrowing costs as investors bet on which nation may need aid next.
Lawrence H. Summers, former Treasury secretary, speaking on a panel with the IMF official, said he was discouraged by Zhu’s positive description of Europe. He said the rescue package approved by the continent’s leaders last month ‘’was manifestly inadequate at the time it was reached.’’
‘Perpetuate the Denial’
“If the IMF is continuing to stand with the October framework, it is continuing to perpetuate the denial that has brought us to this point,” Summers said. “The prospects for success depend on discontinuous change with respect to the nature of support to prevent panic. We just haven’t seen anything like that yet.”
Zhu said the global financial system could be threatened by weakness in Europe’s banks, adding impetus for world policy makers to help find a solution.
“There’s a sense the whole world should work together to help Europe and to push them as well to solve the issue,” he said.
On China, Zhu said while real estate prices, especially in Beijing, remain very high, he doesn’t “think that’s a bubble.”
Hedge fund manager Jim Chanos has predicted since at least February 2010 that China’s property market will slump, saying the country is on a “treadmill to hell” because of its reliance on real estate for growth.