IMF chief cautious on French-German debt pact

International Monetary Fund chief Christine Lagarde on Monday welcomed France and Germany's push for tough fiscal standards in the eurozone, but said more steps were needed to tackle the
region's crisis.

IMF chief cautious on French-German debt pact
MEDEF (File)

“It’s particularly appropriate that the European leaders and in particular President (Nicolas) Sarkozy and Chancellor (Angela) Merkel have decided that things have to really move, and say: something’s got to give,” Lagarde said in a speech at the European Institute in Washington.

“And this at least beginning of compromise we see gradually shaping up is critical.

“It’s not in itself sufficient and a lot more will be needed for the overall situation to be properly addressed and for confidence to return, to not only markets, but to investors, to consumers, to those (companies) that have to set out their strategies for the next two, three or four years,” she

Sarkozy and Merkel ahead of a pivotal debt crisis summit had earlier on Monday called for a new EU treaty for either all 27 members or just the 17 eurozone states that would insist on tougher budgetary rules.

Lagarde said the global outlook remained bleak.

“In terms of global economic outlook, we are clearly seeing a situation that can be characterized as extremely serious, extremely concerning, and to use some of Jean-Claude Trichet’s own words, extremely grave,” she said.

“It’s not only serious in the heart of Europe, but it’s obviously very serious in many corners of the world.”

The IMF last week warned that Europe’s worsening economy and financial market turmoil meant it was likely in January to revise downward predictions it made in its World Economic Outlook report issued in October.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.