Lagarde Says Debt Ceiling, Euro Crisis Threaten Global Growth

Failure to find a solution to the U.S. debt-ceiling debate and matters in Europe will result in a “major world economic crisis,” International Monetary Fund Managing Director Christine Lagarde said.

Without a resolution, there will be a crisis “due to the size of the economies of these two and their relationship with other countries in terms of trade and investment,” she told reporters in the Malawian capital, Lilongwe, today.

While the U.S. Congress approved a deal to avoid raising taxes on most Americans in the so-called fiscal cliff, policy makers need to agree on raising the $16.4 trillion debt ceiling, which it reached on Dec. 31, according to the Treasury Department. Extraordinary measures the agency is taking will be exhausted as early as mid-February, the Congressional Budget Office said.

In Europe, growth has weakened as a crisis over debt levels among some member nations continued into a third year.

The U.S. and European issues will affect developing countries including African nations, which also face risks from rising food prices, Lagarde said.

“In this context, it will be essential for African countries to have strong macroeconomic frameworks, improve institutional capacity, and ensure sustainable and inclusive growth in order to maintain the impressive economic performances of the last 10 years,” she said.

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