VILNIUS: The International Monetary Fund (IMF) chief Christine Lagarde said on Thursday she was optimistic the eurozone would overcome its debt crisis and recession, but that structural reforms and a planned banking union were key.
“I think that there is a bright future for Europe, and there is a bright future for the eurozone and for the euro,” Lagarde said during a visit to the Lithuanian capital Vilnius.
IMF tips 0.9 per cent growth for the 17-member eurozone next year, after a 0.6 per cent contraction in 2013. “This is predicated on continuation of the structural reforms, the strengthening of the European architecture, particularly with the European banking union project,” Lagarde said.
The future EU-wide regulatory system for banks is meant to prevent failing lenders from damaging the wider economy, as they have done in several EU nations during the debt crisis. “We should not forget that most currency zones took a lot of time to reach not just currency union, not just banking union but fiscal union,” she said, speaking at a panel discussion at Vilnius University.
Lagarde’s comments echoed EU Economic Affairs Commissioner Olli Rehn who on Tuesday said the eurozone’s battered economies are slowly emerging from a crippling recession with growth expected to return by the second half of 2013.
A former French finance minister, Lagarde also praised 2004 EU entrant Lithuania for introducing a series of biting austerity measures in 2009 that saw its output sink by 14.8 per cent.
“I really commended the Lithuanian authorities and the Lithuanian people for its very astute crisis management, the adjustment that followed and the restoration of growth after the crisis,” she said. “When I look at the numbers from 2009 until today, it’s really an amazing journey that has been travelled by the country.”
The Baltic nation of three million people saw it first signs of recovery in 2010, with output expanding by 1.4 per cent. The IMF has forecast its economy to expand by 2.9 per cent this year.
Lagarde also hailed Lithuanian efforts to adopt the euro in 2015, saying it would cut borrowing costs and ensure stability. An ex-Soviet republic of three million, Lithuania assumed the EU’s half-year rotating presidency on July 1. Speaking in Lithuania, Lagarde said that the IMF has also advised India to invest in infrastructure and urged China to switch from large projects and invest more on developing a consumer-oriented society.
Lagarde says that even though some central banks could do more to combat sluggish economic growth, monetary policy couldn’t replace “everything else that needs to be done.”
Meanwhile the European Central Bank said on Thursday it would ease its rules for the collateral it accepts from banks in exchange for loans, in a bid to boost lending. In its biennial risk control review, the ECB said it had decided to allow banks to offer more types of asset-backed securities (ABS) in return for ECB funds. The ECB is looking for ways to make its policy of easy money felt more widely in the real economy. In particular, the central bank and other European institutions are concerned about the difficulties small and medium-sized enterprises (SMEs) in some countries are experiencing in securing funding.