Euro off the hook
October 13, 2012
What finance ministers from around the world put into their final communique after the annual meeting of the World Bank and International Monetary Fund (IMF) in Tokyo on Saturday (September 10, 2012) reads initially like dozens of other statements that have come from leaders' meetings.
"We need to act decisively to break negative feedback loops and restore the global economy to a path of strong, sustainable and balanced growth," the communique read.
But a sentence about the eurozone was new to many readers accustomed to reading about the ongoing debt crisis.
"In the euro area, significant progress has been made," the leaders wrote while welcoming a decision by the European Central Bank to buy bonds, as well as the launch of the European Stability Mechanism (ESM). Still, the ministers added, "further steps are necessary."
No panacea
IMF Managing Director Christine Lagarde said that there's a better political base now for such action than six months ago. The key at this point would be to consolidate budgets over the mid- and long-term while enacting structural reforms to promote competitiveness and growth, she added.
"But the pace and type of measures obviously need to be calibrated on a country-by-country basis ... it cannot be one-size-fits-all," said IMF Managing Director Christine Lagarde.
German Finance Minister Wolfgang Schäuble expressed satisfaction that the European debt crisis was no longer the major topic of discussion. "Everyone agreed that Europe is on the right path," he said.
"Everyone has a load to carry," Schäuble added, referring to emerging as well as industrialized countries. While the United States approaches its legal debt ceiling, emerging nations need to find way of stabilizing growth, according to Schäuble.
Differing approaches
Schäuble said some nations were working toward reforming their institutions and pursuing sustainable growth while "others sit there and put the blame for falling growth rates on others." He said there was agreement with emerging countries that regulation of the banking sector would be key accomplishment, allowing politicians to refocus on the actual economic situation rather than being forced to manage the excesses of a financial sector concerned mainly with itself.
Schäuble did not comment on an idea floated by ECB board member Jörg Asmussen of allowing Greece to use bailout money to buy back old bonds as a way to reduce its soverign debt. The Finance Ministry calculated the costs of such a play a year ago and concluded that it could reduce Greek debt by 20 billion euros ($26 billion).
"We have to look at every possibility," Schäuble said. "But the plan for Greece has to continue, otherwise we will appear unreliable. We will wait for the troika's report. Until then people can come up with any ideas they can imagine. But finance ministers will not comment on them."