Clock ticking
July 26, 2011
As the threat of a massive debt default looms larger every day in the United States, the head of the International Monetary Fund, Christine Lagarde, on Tuesday urged for a swift resolution to the fierce political blockages that have so far prevented a solution.
"The clock is ticking and clearly the issue needs to be resolved immediately," Lagarde said in an address to the Council on Foreign Relations think-tank in New York.
Lagarde warned of the global effects if US lawmakers are unable to reach a compromise on raising the country's debt ceiling by next week's deadline.
"To have a default or to have a significant downgrading of the United States [credit rating] would be a very, very, very serious event," Lagarde said. "Not for the United States alone, but for the global economy at large."
Democrats and Republicans in Congress are at odds at how the United States should reduce its debt and avoid defaulting on its loans. Political wrangling over the balance of tax increases and spending cuts which are needed to facilitate raising the debt ceiling and averting a default has so far prevented a compromise. The United States risks defaulting if no solution can be reached by August 2.
Follow Europe’s lead
Lagarde also urged the eurozone to implement its "courageous" plan to fight its sovereign debt crisis.
The agreement reached last Thursday at a European Union summit in Brussels. would provide Greece with a second bailout, of 159 billion euros ($230 billion), to avert a potential debt default that could jeopardize the economic recovery in Europe and worldwide.
Among the package of measures agreed, leaders pledged to expand and strengthen the European Financial Stability Facility, a crisis fund established last year to aid troubled member economies.
Lagarde said eurozone leaders should "put their money where their mouth was" and approve the plan before the summer break when parliaments close.
"What from an IMF point of view remains to be done is clearly implementation," she said. "It's also a matter of the governments themselves to actually deliver on the plan that they have signed up to on Thursday."
Author: Matt Zuvela (AFP, Reuters)
Editor: Rob Turner