U.K. Chancellor of the Exchequer George Osborne warned of a triple threat to the world economic recovery that will materialize unless leaders take action.
Finance ministers in Tokyo for the International Monetary Fund’s annual meeting worry that the so-called “fiscal cliff” in the U.S., the synchronized slowdown of economies in China, India and Brazil, and the need to implement promised backstops for the euro will trigger a fresh crisis as the global economy struggles to solve existing problems, Osborne said.
“There is less of an immediate sense of crisis at these meetings,” Osborne told reporters in Tokyo. “There is perhaps a greater concern about what lurks behind the next corner. There is a greater concern about the medium-term risks.”
Echoing comments from IMF Managing Director Christine Lagarde, Osborne said the euro area remains at the “epicenter of the crisis.” The Washington-based lender said this week that failure to remedy problems in Europe was helping to generate an “alarmingly high” risk of a steeper slowdown in the world economy, already on course to expand this year by the least since the 2009 recession.
“The euro zone has, however, been joined by the looming U.S. fiscal cliff, which people are concerned about and about which there was quite a lot of discussion yesterday, and the slowdown in the emerging economies,” Osborne said. This “triple threat to recovery” is very much on the agenda here and people have been stressing the importance of delivering in all these areas, he said.
Treasury Secretary Timothy Geithner yesterday said U.S. lawmakers should not delay dealing with the more than $600 billion in government spending cuts and tax increases which are set to take effect at the beginning of next year unless Congress acts.
A pact that allows for deficit reduction over time and opens up room for investment in the shorter term would leave the U.S. with “the potential to grow significantly faster,” Geithner said. “We’re going to take a run at it.”
“All western countries face this challenge of slow growth, high indebtedness,” Osborne said. Brazilian Finance Minister Guido Mantega said the so-called BRICS nations of Brazil, Russia, India, China and South Africa are working to create a pool of reserves to provide a “rearguard” of financial support.