The European debt crisis is growing to the point that it won’t be solved by one group of countries, Christine Lagarde, the managing director of the International Monetary Fund said today.
Lagarde said that if countries don’t work together, the world will face a situation similar to the 1930s, before the world slid into World War II.
“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do,” Lagarde said.
If the international community doesn’t work together, “the risk from an economic point of view is that of retraction, rising protectionism, isolation,” Lagarde said. “This is exactly the description of what happened in the ‘30s and what followed is not something we are looking forward to.”
Lagarde said the world economic outlook “is quite gloomy” with pervasive downside risk, downward revisions, slower growth than expected, higher deficits than predicted and public finances in shaky condition. “And that is pretty much true the world over,” Lagarde said.
The one exception, she said, is emerging markets and the Asian economies most badly hit during the 1990s economic crisis. They, too, will have to help manage the current crisis if the world is to weather the risk, she said. Leadership has to rest with Europe, she said.
“It’s going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the eurozone, which are sharing this monetary union,” Lagarde said.
She described the eurozone, the countries that use the euro, as a “monetary union which has not been properly been completed by an economic and fiscal union, which is currently in the works.”
As Europe’s leaders work to resolve their “monumental” challenges, the impatience of financial markets is a problem, she said.
“It would be lovely from a market perspective if it was not just ‘currently’ but immediately, a signed, sealed, delivered done-deal overnight,” Lagarde said. “Unfortunately, those of you who have the privilege of belonging to democracies know things do not happen in that way, things take time.”
Lagarde said international support would probably be channeled through the IMF for “organizing a collective financial responsibility, a fiscal solidarity and that element of risk-sharing that is expected, pretty much, around the globe.”
Lagarde spoke at the State Department, where Secretary of State Hillary Clinton had invited her to address an event to promote greater involvement of women in public policy.
The leadership skills that are needed to face this crisis are ones that management consultants such as McKinsey & Co Inc. have found women possess in abundance, Lagarde said.
“Because it’s a question of courage or actually facing the issues, not being in denial, accepting the truth, accepting the reality and then dealing with it,” Lagarde said. “And frankly, from my previous life either in the private sector, or as minister of finance, or in my current position, it’s a set of skills that women excel at.”