IMF\\\'s Lagarde defends Europe in heated Davos debate

FE Team | Published: January 24, 2015 00:00:00 | Updated: November 30, 2026 06:01:00

DAVOS, Switzerland, Jan 23 (AFP) : It was supposed to be a serious debate about the merits of monetary stimulus, but instead a panel in Davos on Thursday featuring IMF chief Christine Lagarde, quickly degenerated into a skirmish over the European economy.
"There is a general expectation to compare the US economy and the euro area and I don't think that's a reality," Lagarde said after an onslaught from her largely American co-panelists, including the CEO of megabank Goldman Sachs.
Hand-wringing over the fate of a wobbly Europe has become a Davos tradition, ever since debt-wracked Greece threatened to destroy the eurozone in 2010.
This year was no different, especially with Greek elections set for Sunday and the imminent decision by the European Central Bank to unleash a massive bond-buying scheme despite the opposition of the bloc's most powerful member, Germany.
But unlike Greece, or other usual targets France and Italy, it was Germany that stirred debate, blamed for a blind push for austerity and imposing its singular economic vision on others.
"It is the failure to recognise that a one-off model that worked to produce export-led growth for Germany in the early part of the decade will lead to an outcome that is worse for everyone now," said former US treasury secretary Lawrence Summers.
"It is the error of assuming that the strategy that worked for one once, when applied universally will work," he said.
Lagarde however doubted that there was that much space for Germany to do anything to help out its neighbours and that little room existed for more public spending.
Options were limited "given that we're in a high-unemployment, high-debt environment, and given that structural reforms are fine but effectively what we need the most is demand, and not many in the eurozone have fiscal space to do that," she said.
Summers decried a "lack of imagination" by the Europeans to solve their problems, bringing a sharp rebuke from Ana Patricio Botin, the new CEO of Spain's Banco Santander, Europe's biggest bank by assets.
"So you say Europe is less imaginative than the US?," she called out to Summers, who now teaches at Harvard University.