Eurozone pressed over growth at IMF/World Bank meet

GMT 23:36 2014 Friday ,10 October

Arab Today, arab today Eurozone pressed over growth at IMF/World Bank meet

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Washington - AFP

The world's economic policy elite kept up pressure on the eurozone Friday to fight off stagnation, with Germany under the gun to support more spending to spark growth.
But Berlin continued to fend off pressure to allow a loosening of budget constraints across the struggling euro area, saying it would be "foolish" to sacrifice the gains made in improving government finances.
Finance ministers and central bank chiefs from around the world, in Washington for the annual meetings of the International Monetary Fund and World Bank, voiced strong worries that growth in the eurozone economy was stalling, on the edge of a new recession.
It was seen as one of the biggest challenges confronting the global economy, along with turmoil in Ukraine and the Middle East, and the still-uncontrolled Ebola epidemic in West Africa, which has killed about 3,900 people in just a few months.
And it was expected to be a key topic in a low-key meeting of the finance chiefs of the Group of 20 leading economies, also taking place in Washington on Friday.
"The European economy, especially the eurozone, is facing stronger headwinds than we had expected during our spring meetings," said Poul Thomsen, head of the IMF's European department.
"Domestic demand is recovering too slowly and external demand has also disappointed," he said.
"An extended period of very low inflation... will make it much more difficult for those countries that have to reduce still-excessive public debt burdens, and households and companies to clean their balance sheets."
In a statement to the IMF Friday, European Central Bank President Mario Draghi admitted that slowing demand was now a factor in pulling down inflation, which now at 0.3 percent is seen as a clear indicator of the risk of the eurozone returning to recession.
Most attention has turned to Germany, with Berlin being urged to ease its objections to greater spending on growth- and job-producing activities like infrastructure development even if it means higher debt loads for eurozone governments.
Traditionally a backer of strong government budgetary discipline, even the IMF this week stressed that more borrowing and deficit-spending by states aimed at strengthening growth is desirable.
But German Finance Minister Wolfgang Schaeuble said it would be "foolish" to put at risk the gains made in stabilizing public finances across the eurozone.
"And anyway there is not much to be achieved" in terms of strengthening long-term growth, he told journalists in Washington.
But Germany appeared to allow some ground for stimulus. Jens Weidmann, the president of the Bundesbank, said that public investment "could be increased" in Germany, though he cautioned against sacrificing budget discipline.
The focus on Europe underpinned worries expressed by IMF Managing Director Christine Lagarde that the world could sink into a "new mediocre" of tepid growth, not enough to generate jobs to lower unemployment or satisfy the needs of growing populations.
She also cautioned against giving up the gains made strengthening  government finances since the 2008 financial crisis.
"At the same time, fiscal policy must be as growth- and jobs-friendly as possible," she stressed.

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