The Wall St Journal reports that the angst was underscored in a blunt speech Saturday by the International Monetary Fund's new managing director, Christine Lagarde, at the Fed's annual retreat here.
"We risk seeing the fragile recovery derailed," the former French finance minister said. Those risks have been aggravated, she said, by the public's sense that top policy makers aren't adequately addressing the problems they face. "We are in a dangerous new phase," she said. The IMF chief pointedly called on leaders of major central banks to keep interest-rate policies "highly accommodative," a reference to the European Central Bank, which has begun to raise rates....
She directed sterner words at politicians. Europe needs to bolster the capital in its banks and—along with the U.S.—needs to strike the delicate balance of reducing government debt in the long run without cutting so aggressively in the short run that damage is done to tenuous economic growth. Her remarks could presage an effort by leaders of G-20 nations meeting in Cannes, France, in November to develop more aggressive responses to fiscal crises and the weak economy...
Coming weeks pose important challenges for financial markets. Officials here were especially worried about several fraught negotiations in Europe. European parliaments need to approve an expansion of the powers of the European Financial Stability Facility, which is seen as critical to stabilizing strained government finances in Greece, Portugal and elsewhere. Leaders in Finland are demanding hefty collateral in return for their support of Greece. Other creditors are contemplating a debt exchange with the Greek government that could lead to more turmoil if it fails…..
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