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IMF chief Christine Lagarde urges action in tackling euro crisis

TOKYO -- The head of the International Monetary Fund on Thursday called for urgent action to tackle Europe's debt problems and an approaching fiscal crisis in the U.S., warning that the struggling world economy is already falling short of even pessimistic expectations.

IMF chief Christine Lagarde, speaking to reporters as the IMF and World Bank held annual meetings in Tokyo, praised recent steps taken by the European Central Bank and European governments, but said “more needs to happen, and faster.”

Finance ministers and central bankers from the Group of Seven richest nations met for about 90 minutes on the sidelines to discuss the European debt crisis. They also discussed the impending budget impasse in the U.S., an issue that prompted some at the meeting to express concern, according to a senior Japanese Ministry of Finance official. They released no communique.

U.S. Treasury Secretary Timothy Geithner was upbeat about recent moves in Europe to stabilize and reform crisis-stricken economies.

“The basic thrust of the strategy is right and good,” he told a conference on the sidelines of the IMF and World Bank meetings. “They're already having traction in improving competitiveness.”

Geithner also sought to strike a reassuring tone regarding the threat of the so-called “fiscal cliff” of tax increases and deep spending cuts that will take effect in 2013 unless Congress and the Obama administration resolve a budget impasse.

The Obama administration intends to try to fix the problem before the end of the year, Geithner said. “We're going to take a run at it.”

The IMF has urged the U.S. to raise the ceiling on the level of debt the government can issue, which is capped by law. In August 2011, a battle between Republicans and Democrats over raising the limit wasn't resolved until the U.S. almost defaulted on its debt.

Lagarde called for “decisive action” on the issue.

The IMF has scaled back its global growth forecast for 2012 to 3.3 percent from 3.5 percent, and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.

“We are not expecting a very, very strong recovery. The recovery continues, but it continues more slowly than we had expected earlier this year,” said Lagarde. The slowdown is “having a ripple effect on emerging markets, and in particular in Asia.”

She did praise recent steps to shore up Europe's financial system, which has been burdened by high government debt and weak banks in countries such as Greece and Spain, but stressed that more needs to be done.

China's No-show

Lagarde also said two senior Chinese finance officials who cancelled their trip to Tokyo amid a territorial dispute with host Japan will “lose out” by not attending. “Our concern is that they will be missing a great meeting,” she said. “We have a lot of substantive issues to discuss.”

Diplomatic tensions have flared between the two Asian giants over a cluster of tiny islands in the East China Sea controlled by Japan but also claimed by China. In an apparent sign of Beijing's anger over the issue, People's Bank of China Governor Zhou Xiaochuan, who was scheduled to give the event's closing speech on Sunday, will not be attending. His deputy will represent him in the meeting and deliver the speech.

Speaking in Beijing, China's foreign minister, Yang Jiechi, described the decision to have Zhou and some other senior finance officials to stay home “completely appropriate.”

But much is at stake. Lagarde stressed that economies in Asia are critical to global growth, and hoped that disputes between countries in the region can be resolved for the good of economic cooperation in Asia and the rest of the world.

“We hope that differences, however longstanding, can be resolved harmoniously and expeditiously so that from an economic point of view cooperation can continue ... since we are all very closely interconnected,” she said.

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This handout photo released by the International Monetary Fund shows Managing Director Christine Lagarde speaking at a press conference during the annual meetings of the IMF and the World Bank in Tokyo, Thursday, Oct. 11. (AFP)

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