International Monetary Fund Managing Director Christine Lagarde said a political agreement on the U.S. budget should be comprehensive because a minimal deal would fail to provide certainty for investors.
Markets would sink without measures to avoid more than $600 billion in spending cuts and tax increases due to come into force next year, Lagarde said, according to a transcript of a taped interview for today’s “CNN’s State of the Union” program. Still, an agreement that would only extend tax cuts for the middle class without addressing spending or entitlements would be insufficient to reassure the rest of the world, she said.
“I don’t think that is enough because there is still that degree of uncertainty that fuels doubt, that prevents investors, entrepreneurs, households from making decisions, because they don’t know what tomorrow will be,” Lagarde said when asked about such an option. “It would be much better to actually have a more comprehensive approach and to deal with all the issues.”
U.S. House Speaker John Boehner and President Barack Obama appear no closer to a budget agreement with three weeks left to avert the so-called fiscal cliff. Obama this week insisted that no deal is possible without letting income tax rates rise for high earners, while Boehner said the administration needs to get “serious” about spending cuts.
Lagarde, who at the IMF helm has been consumed by the European debt crisis, said the turmoil there is less of a risk for the U.S. economy than the fiscal cliff. The Washington-based IMF expects U.S. growth of about 2.1 percent next year, and no growth without a broad ranging fiscal agreement, she said.
“The real threat that we have at the moment is really here with us,” Lagarde said. “We can be our own best friend or our own best enemy.”