Communication for Sustainable Development

Christine Lagarde's Playbook For Europe

Christine LagardeImage via Wikipedia
International Monetary Fund managing director Christine Lagarde had a tough act to follow in Jackson Hole, Wyo. Saturday, a day after the heavily-anticipated speech of Federal Reserve Chairman Ben Bernanke. The former French finance minister (and #9 on Forbes’ list of the World’s Most Powerful Women) did not disappoint.
Lagarde’s remarks included a three-step prescription to get control of Europe’s sovereign debt crisis,
but it remains to be seen if her recommendations – which admittedly are not particularly revolutionary – will fall on deaf ears.


The call for an “urgent recapitalization” of Europe’s banking system is getting the most play, but the first step Lagarde called for was for governments to walk the tightrope of fiscal sustainability without choking off growth. “It does not mean drastic upfront belt-tightening,” said Lagarde, who suggested that addressing long-term risks like rising pension and healthcare costs will leave plenty of wiggle room in the short-term to support growth and jobs with additional spending as necessary, supported by the European Central Bank and other EU members.

On the bank front, Lagarde said the first priority is “cutting the chains of contagion,” a clear concern in an era when a bank like France’s Societe Generale feels compelled to issue a press release debunking market rumors about its exposure to Greek sovereign debt. One step to that effect was taken Monday, with the merger of Alpha Bank and Eurobank, Greece’s second- and third-largest lenders. There is a long way to go though, as banks in Ireland, Portugal, Italy and Spain considered just as vulnerable and growing fears — as evidenced by the SocGen brouhaha — that “core Europe” nations like France and Germany will not be able to escape the crisis unscathed. (See “Why Euro Debt Matters.”)

The third step espoused by Lagarde parrots a line that has been a primary talking point of her old boss, French President Nicolas Sarkozy, and his German counterpart Angela Merkel: the need for a common vision for Europe’s future. (See “Merkel And Sarkozy Reject Eurobond.”)

“Current economic turmoil has exposed some serious flaws in the architecture of the eurozone,” Lagarde said, urging Europe to “recommit credibly to a common vision” built on solid foundations, including “fiscal rules that actually work.”

The Greek bank deal helped bolster European markets Monday in a rally that extended across the Atlantic as the temporary respite from contagion fears set the stage for a substantial rally in New York that had the major indexes more than 2% higher.

source: Forbes.com
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