Davos 2012: IMF issues austerity warning
Inappropriate spending cuts could “strangle” growth prospects, the head of the IMF has warned.
Austerity programmes must be tailored to each economy, Christine Lagarde said, and not be “across the board”.
The International Monetary Fund has been one of those stressing the need for countries to cut their debts, but some fear this could hit growth.
The correct response to the eurozone debt crisis has been a major debate at World Economic Forum in Davos.
“We are not suggesting there should be fiscal consolidation across the board,” Ms Lagarde stressed.
“Some countries have to go full-speed ahead to do this fiscal consolidation, but other countries have space and room. They should explore what to do… in order to help themselves.
“It has to be tailor-made.”
One of those expressing concerns about the possible implications of fiscal consolidation at the gathering at the Swiss ski resort was US Treasury Secretary Tim Geithner.
He told the annual meeting of political and business leaders on Friday that there was a risk of a recessionary “cycle” from austerity measures.
“There is a risk that every disappointment in growth will be met with an austerity that will feed the decline, and that is a cycle you have to arrest to solve financial crises,” Mr Geithner said.