The Kenynesian Christine Lagarde
Christine Lagarde’s call at the Jackson Hole symposium at the weekend for a recapitalisation of Europe’s banks has set the cat among the eurocrat pigeons.
But there’s something in the new head of the IMF’s remarks which could cause a fluttering in the British dovecotes too: her espousal of a Keynesian approach to deficit reduction in countries that retain some room for manoeuvre in the bond markets.
“While fiscal consolidation remains an imperative, macroeconomic policies must support growth. Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery. The precise path is different for each country. But to meet the credibility test, each country needs a dual focus: a primary emphasis on durable measures that will deliver savings tomorrow which, in turn, will help to create as much space as possible for supporting growth today—at least by permitting a slower pace of consolidation where possible.”
And then there’s this:
“Growth is necessary for fiscal credibility—after all, who will believe that commitments to cut spending can survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?”
George Osborne has generally liked what the IMF has said in the past about his deficit reduction strategy. But Ms Lagarde, in calling for a slower pace of fiscal consolidation and a focus on immediate-term demand, sounds closer to Ed Balls’ position than that of the Chancellor.Tagged in: Christine Lagarde, deficit reduction, economy, george osborne, imf
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