Crisis meeting in Washington

When German Finance Minister Wolfgang Schäuble and Bundesbank President Jens Weidmann join their counterparts from 187 countries at the annual meeting of the International Monetary Fund (IMF) and the World Bank this week, optimism about the state of the global economy will be in short supply. With the exception of the United States, economic growth around the world is meager at best. On top of that, the Ebola epidemic and other geopolitical flashpoints are endangering what little progress has been made.

Six years after the financial crisis struck, the world economy is still crippled, and many countries are still grappling with the long-term consequences, said the IMF's Managing Director Christine Lagarde.

The lingering effects of the financial crisis is apparent by the high public and private debt levels in many countries and by stubbornly high unemployment, Lagarde told students during a keynote speech at Georgetown University in Washington D.C., speaking of "clouds hovering over the global economy."

Old crises, new dangers

The conflicts in Ukraine, the Middle East and Asia could create turbulence in financial markets and have a devastating effect on commodity prices, Lagarde said. The Ebola outbreak should also be taken seriously - to the point that people do something about it rather than only pay lip service. The IMF chief had kind words for emerging and developing economies: They were the ones who carried much of the burden of the crisis, contributing roughly four-fifths of global growth since 2008.

However, these countries have to accept that such a high growth rate is not sustainable forever, Lagarde said, conspicuously ignoring the fact that Brazil, Russia, India, China and South Africa (BRICS) just founded their own monetary fund and a private development bank to act as a counterweight to the western-dominated IMF and WB. One doesn't talk about impersonators - one just has them.

Wariness over shadow banks

One thing that the IMF is surely worried about and that will almost definitely play a role in Washington's deliberations is the rapidly growing role of the so-called shadow banks - institutions, such as hedgefunds or pension funds that do business like banks but aren't subject to the same strict regulations.

Since the outbreak of the financial crisis, the warning never faded that the ever-more closely regulated credit lending business of private banks could withdraw to more weakly regulated sectors of the financial market. This development is driven by a mixture of different problems: Tougher bank regulation, low interest rates and abundant liquidity.

The biggest shadow bank sectors in the world are located in the US, the eurozone and Great Britain, according to the IMF. In Great Britain, the assets of this sector are twice as large as anywhere else, measured by total economic output. In the US, assets are even bigger than those of the traditional banking sector. In the US and eurozone, the number of shadow banks involved in financing is still rising, and in China, that share accounts for 25 to 35 percent of annual economic output.

A departure from loose economic policy

In addition to the rapidly growing shadow bank sector, another thing that the IMF is worried about is the "asynchronous" monetary policy of the central banks in industrialized countries. While the US is already gradually winding down its ultra-loose monetary policy, the president of the European Central Bank, Mario Draghi, is arranging to buy up all the toxic assets of the countries in the eurozone's southern periphery.

"A loose monetary policy prevented the worse from happening during the crisis, and all of the industrialized countries' central banks applied these means," IMF's Lagarde said. "But that alone cannot boost an economy. You can't score a goal with only defenders."

That's why she has called on Washington to adopt a more decisive policy. Structural reforms in product and labor markets are just as necessary as a sustainable budgetary policy and public investment in infrastructure. According to estimates by experts, the global need for infrastructure investment is going to hit 6 trillion in the next 15 years.