Europe’s Leaders Hear Call to Do More to Spur Growth
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Version 0 of 1. WASHINGTON — For another year, the annual spring meetings of the World Bank and the International Monetary Fund ended with a single, strong message aimed at Europe: Do more. Yet in a change, signs suggested that European leaders were starting to agree, with more high-ranking ministers and officials talking up the need to slow the pace of budget cutting and bolster growth on the Continent. At the outset of the gathering of finance ministers and central bankers last week, the I.M.F. lowered its global growth forecasts, again citing weakness from Europe. And Christine Lagarde, managing director of the fund, separated nations into three groups that might be described as strong, trying and laggards. In the first group she placed the developing and emerging economies that are the engine of global growth. In the second she put countries that are gaining momentum in their recoveries, like the United States. The third group, she said, contains countries that continue to struggle with their policy response to the crisis — not growing, and hindering global growth. That group includes many countries in high-income Europe, including Britain, Germany and Italy. At a news conference during the meetings, Ms. Lagarde said such countries should try “anything that works” to create jobs. That starts “with growth and a good policy mix, which relies on not just one policy but a set of policies that will include fiscal consolidation at the right pace,” she said, also citing structural changes and loose monetary policy as necessary. The debate at the meetings focused on helping to identify that right mix of policies, with officials from the fund and countries including the United States arguing that austerity had sapped too much demand, too soon, from the Continent. In the past, European officials tended to brush off such advice. And some powerful officials continued to do so last week, instead emphasizing budget cutting to soothe financial markets. “Fiscal and financial sector adjustments remain crucial to regain lost credibility and strengthen confidence,” said Wolfgang Schäuble, the finance minister of Germany and a powerful voice promoting austerity in Europe. “At the current juncture, it is in particular the responsibility of the advanced economies, including Japan and the U.S., to follow through with ambitious fiscal consolidation over the medium term.” George Osborne, the British chancellor of the Exchequer, echoed that sentiment, even as high-level officials at the fund repeatedly criticized the government of Prime Minister David Cameron for its campaign of budget cuts. “The priority for most advanced economies is still to restore fiscal sustainability,” Mr. Osborne said in a statement. “Continued consolidation is needed over the medium term, supported by highly accommodative monetary policy.” But the fund downgraded its growth estimates for several large European economies, including those of France and Germany, last week. Many have re-entered a period of economic contraction, with their unemployment rates continuing to rise. In light of that, other European officials said a renewed focus on growth — by slowing budget cuts, changing deficit targets or taking other measures — might be appropriate. “They are preaching to the converted,” Olli Rehn, the European commissioner for economic and monetary affairs, was quoted by Reuters. “In the early phase of the crisis, it was essential to restore the credibility of fiscal policy in Europe because that was fundamentally questioned by market forces,” Mr. Rehn added. “Now, as we have restored the credibility in the short term, that gives us the possibility of having a smoother path of fiscal adjustment in the medium term.” In a communiqué, the finance ministers and central bank governors of the Group of 20 large economies said: “We have agreed that while progress has been made, further actions are required to make growth strong, sustainable and balanced.” They urged a closer banking union in the euro zone and for “large surplus economies” to take “further steps to boost domestic sources of growth.” In her opening remarks, Ms. Lagarde also cited Japan as having continued to struggle with slow growth. But at the spring meetings, Tokyo won plaudits for its ambitious new campaign of fiscal and monetary stimulus to bolster demand and end the deflation that has plagued the economy for more than a decade. Some finance ministers had questioned the Bank of Japan’s aggressive easing of monetary policy, arguing that it was aimed at pushing down the value of the yen and as a result unfairly favoring Japanese exports. If other countries followed suit to try to devalue their currencies, it could set off a round of “currency wars,” some warned. But the Group of 20 communiqué stated that “Japan’s recent policy actions are intended to stop deflation and support domestic demand,” a tacit nod to the recent round of easing. And the I.M.F. raised its estimates of Japan’s growth on the back of the government’s new policy moves. At the meetings, Dr. Jim Yong Kim, the new president of the World Bank, also outlined his policy goals: the effective eradication of extreme poverty in a generation. The world has achieved the Millennium Development Goal of halving extreme poverty by 2015. To cut the rate to 3 percent by 2030, Dr. Kim said, would require strong, inclusive growth. |