The world risks sliding into a 1930s-style slump unless countries settle their differences and work together to tackle Europe's deepening debt crisis, the head of the International Monetary Fund has warned.
On a day that saw an escalation in the tit-for-tat trade battle between China and the United States and a deepening of the diplomatic rift between Britain and France, Christine Lagarde issued her strongest warning yet about the health of the global economy and said if the international community failed to co-operate the risk was of "retraction, rising protectionism, isolation".
She added: "This is exactly the description of what happened in the 1930s, and what followed is not something we are looking forward to."
The IMF managing director's call came amid growing concern that 2012 will see Europe slide into a double-dip recession, with knock-on effects for the rest of the global economy. "The world economic outlook at the moment is not particularly rosy. It is quite gloomy," she said.
Since arriving in Washington in the summer, Lagarde has been forced to cut her organisation's forecasts for global growth next year and is now putting pressure on countries outside the eurozone – including Britain – to play their part in containing Europe's sovereign debt crisis.
An IMF plan, agreed at the Brussels summit last week, involves obtaining €200bn (£168bn) from European countries and then asking the rest of the world to contribute. Beijing has so far proved reluctant to join in a rescue of the eurozone and has said it is up to Europe to sort out its own problems.
Speaking at the State Department in Washington, Lagarde said: "There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating.
"It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking some action."
Lagarde said that the scale of the eurozone crisis, and its implications for other countries, meant that Europe's governments could not tackle it alone. "It is going to require efforts, it is going to require adjustment; and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries, and in particular the countries of the eurozone," Lagarde said.
As Lagarde called for unity, there were strong attacks on Britain from both the French finance minister, Francois Baroin, and the governor of the French central bank, Christian Noyer, in what appeared to be a concerted attempt by Paris to escalate a war of words with London in the wake of Britain's decision to veto a new EU treaty.
Noyer, speaking amid financial market speculation that the Standard & Poor's ratings agency was about to strip France of its coveted AAA rating, said Britain's credit rating should be downgraded first.
He said a downgrade for France (which would drive up the interest Paris pays to borrow, and make loans in the wider economy more expensive) "doesn't strike me as justified based on economic fundamentals.
"If it is, they should start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth, and where bank lending is collapsing."
In strikingly similar language, Baroin poked fun at David Cameron in a speech to the French parliament. "Great Britain is in a very difficult economic situation: a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects, and growth forecasts well under the eurozone average. It is an audacious choice the UK government has made."
Downing Street responded with restraint. Cameron's official spokesman said: "We have put in place a credible plan for dealing with our deficit, and the credibility of that plan can be seen in what has happened to bond yields in this country." Privately, officials said it was a "strange thing" for Noyer to speak as he did, but there was no desire in London to inflame the situation.
In another sign the financial crisis was deepening last night, Fitch cut its ratings on eight of the world's biggest banks, including Barclays, Bank of America, and Deutsche Bank. It warned that they all faced "increased challenges", with potential losses hard to calculate.
John Bryson, the US commerce secretary, signalled that Washington would retaliate against Beijing's decision to put tariffs on high-performance US cars imported into China. "The United States has reached a point where we cannot quietly accept China ignoring many of the trade rules. China still substantially subsidises its own companies, discriminates against foreign companies, and has poor intellectual property protections," he said.
Britain has been given observer status on a working group set up by the Economic and Financial Committee of the EU to carry out technical work ahead of the full-blown negotiations on the treaty, boosting Cameron's claim that Britain has not been marginalised by his move last week.
On Thursday Hungary and the Czech Republic raised doubts about the proposed agreement, saying they would not sign the new treaty if they had to give up their right to decide tax policy. Downing Street denied that Cameron was attempting to foment opposition to the treaty, and said that the prime minister was talking to all sides. But by Thursday the only eurozone leader he had spoken to was Enda Kenny, the Irish prime minister.
Comments
15 December 2011 11:43PM
One wonders why Hillary is smiling as Lagarde delivers this message of doom...
15 December 2011 11:46PM
The world has been sleepwalking towards this moment and we're now totally screwed - I only hope some sanity can prevail and put an end to this neoliberal nightmare, I'm not holding my breath.
15 December 2011 11:47PM
It really is quite extraordinary for the leading central banker to speak this way about another country. Good on No 10 for showing restraint.
15 December 2011 11:47PM
really! now i wonder how all this came about??!!
15 December 2011 11:50PM
So, this neoliberal trickle down effect we've been promised for 30 years isn't going to happen then?
15 December 2011 11:50PM
who knows, but this is CiF - so it's only a matter of time before someone blames Thatcher - out of office since 1990, whilst simultaneously denying Brown (chancellor during the biggest credit fueled asset bubble of all time) could possibly have something to with it, putting the remaining blame on Cameron (playing a shitty hand for less than 2 years)
15 December 2011 11:51PM
Good advice to be had here. Listen to what the IMF has to say and do the opposite.
Result; prosperity.
The IMF has no credibility whatsover. It is a forum of failure.
15 December 2011 11:51PM
No, not a 1930's slump, an 1870s one, which would take the depression right through to 2031. Moody's are busy downgrading banks as I type, it's getting messy very quickly and 2012 is looking bleak I'm afraid.
15 December 2011 11:53PM
Message for Mr Noyer:
GreAAAt BritAAAin says hello.
15 December 2011 11:54PM
...and onward to WW3!
15 December 2011 11:57PM
Meanwhile the ECB conclude that Government spending is harmful to economic performance....http://www.ecb.int/pub/pdf/scpwps/ecbwp1399.pdf
16 December 2011 12:00AM
Trickle-down is alive and well.
It's the debt burden that will trickle down in a reverse Robin Hood.
If the bankers have to pay then the bankers will lose "confidence" in folks like Ms. Lagarde and Mrs. Barroso, Rehn, and Rompuy.
16 December 2011 12:00AM
Can't they at least wait until Britain has an aircraft carrier with planes?
16 December 2011 12:00AM
not for long! ReHypothecation anyone?
16 December 2011 12:00AM
Oh look .... a well-respected Right Winger tells the world EXACTLY what the Left (the real Left, not New Labour) have been shouting in the wilderness for the last 18 months...
"We have been to this place before ... in the 1920s and 1930s.
Lesson 1 from history - austerity WILL NOT help
Lesson 2 - austerity will make things WORSE
Lesson 3 - cutting in a recession will cause a DEPRESSION
Lesson 4 - it's either a New Deal .... or a Great War ... that's our choice"
Cameron and Gideon clearly didn't study history .... or else they are completely blinded by the ideology of their millionaire class.
16 December 2011 12:01AM
Yes but whoever asked who tf are Moodys or Standard and Poors to talk everyone down? Upon what qualification and experience do they do it? I say,don't let them do it! Who tf had heard of them 3 years ago? If they know everything now why didn't they foresee this 3 years ago? Just a set of fookling blaggers!
16 December 2011 12:02AM
So, wait a minute: we have a world population of people with a set of abilities and needs; we have resources. Five years ago, there were a few less people and few more resources - but not massively so in either case. Five years ago, we weren't in a world slump, with prospects of mass world poverty. Now we are. So...o....o...what's changed? A tiny, tiny,tiny group of people pissed about with money. But money isn't a thing. It's not a resource, or an ability or a need. It's just an expression of equivalence. It just relies on sufficient numbers of people believing in it for it to work. But because a this tiny, tiny, tiny group of people were able to con enough other people to think that money could make more money, millions will suffer. And yet, the population, its abilities and needs and the resources aren't significantly different between the before and the after,.
Any system that has that kind of failure built into it sounds like a crap system to me.
16 December 2011 12:02AM
we'll need plenty of Hypothecation!
16 December 2011 12:02AM
The new Euro treaty, in addition to being dead on the vine, was meaningless. The markets (banks) took one look at it and dismissed it as an insult to the intelligence of a fence post.
We all know it's coming, so let's just start the printing contest and get it over with. As for the old chestnut of the Chinese riding to the rescue, why the hell should they when they'll be able to hoover up anything they like in a year or two.
And yes, the IMF are a bunch of self-serving halfwits.
16 December 2011 12:02AM
Didn't Roland Emmerich make a film about all this?
16 December 2011 12:03AM
It's weird anyone takes politicians seriously.
As the Pirate Party reminds us (sad that it's necessary) politicians are our servants - those we charge with doing our business.
Look up to them? As to a dogs bottom, you would have to be low on the social spectrum to find yourself looking up.
So here we sit, dissecting the meaning of the words of people who are at best the equal of our bottoms.
One US politician replied to a question on Answers.com: Yes, we're self selecting. You run.
Fair point. But we fear other tribes.
Though the BBC bans the word tribe, it best describes our human behaviour, as the faffy word clans does not.
I'm off to bed. Pushing out of my head the knowledge that these third-rate non-individuals have a grip where they shouldn't.
16 December 2011 12:04AM
"onwards to WW3!"
Well, a "decent" sized War seems to be the lesson from History ("How to Cure a Recession") ...
...and at the moment, Cameron is spoilt for choice:
Iran? France? Germany?
....if we go for all three at once, that'll probably really help growth?
16 December 2011 12:05AM
Yawn... getting bored of all this stuff now.
Listen up politicians, financiers, ratings agencies ,academics, think tanks and other assorted b%%%%%%s,
I don't care, really I don't.
I don not care about
I really do not give a brass moneys about how my bank functions outside of the fact my money goes in and I can get it out when I want.
I don't mind paying a little bit more if it means we make a few things over here as opposed to China or India if it means people can work
I don't care about the portfolio value of my house anymore or other such b$llocks.
None of it, none of the trappings... nothing.
All I am is the average working bloke. So long as I have a roof over my head, have a job that pays enough for me to live comfortably and to enjoy a few little things I really do not care. Get that into your thick skulls and make it happen.
What I do care about is the massive, massive difference between the top and the bottom and how I have yet to see anyone at the top pay for what is essentially their mess, their broken system... I do not care about your system or you, your screw up... you sort it.
Because at the minute all I see are the unemployed, people in essential but utterly ignored jobs like shelf stackers and cleaners on minimum wage and students amongst others suffering for your mess.
Stop dividing us
Sort your mess out
and then do us all a favour and s$d off.
And Cameron... stop preaching to me like your a man of the people, coz you aren't.
16 December 2011 12:05AM
What's unfortunate is that long term it will be the Chinese Communists who will put an end to the nightmare. They are making mincemeat of the greedy and economically illiterate Libertarians and Neo-Liberals responsible for this self-inflicted Western Second Great Depression.
16 December 2011 12:06AM
O wait..cameron whos only reason he used the veto was his banking buddies wanted to carry on with....the buzz word for 2012!....ReHypothecation...ermm 'fraud'
16 December 2011 12:06AM
The world, including the UK needs to get on with it and let the eurozone (not europe of the EU) go it's own way. The Euro will collapse and will severly affect the world economy but at the end of it growth will resume and those countries with a trusted currency and as long as the UK does not go QE mad sterling will be there.
There is no Euro rescue that all states will agree to - it has no chance
16 December 2011 12:06AM
It's drizzle and dross, al drizzle and dross. They will if they can cut down all currencies until the US dollar, then they'll start on that.
A banker with Balls? Yet to meet one but it's time we had some! MEP ditto.
16 December 2011 12:07AM
The real trouble is all of them were bad as were the PMs between them and prior to them.
We can be tribal and push the blame back and forth left and right (and now centre) but the truth of the matter is all politicians from all political parties are self-serving dishonest incompetent shits.
16 December 2011 12:07AM
Sorry if I had a Daily Mail moment there
My typing is terrible.
16 December 2011 12:09AM
I recall making a humorous prediction, a few years ago that the entire planet would have a socialist economy by mid-century. Turns out to be less than humorous.
Well, the Black Death permanently ended feudalsm in less than a generation. Perhaps this is the modern equivalent of the Black Death that will end capitalism (sort of another name for feudalism, anyway).
16 December 2011 12:10AM
Dont stop caring! thats exactly what 'they' want! dont let the b*****ds grind you down!
16 December 2011 12:10AM
Hmm unfortunate that the French can't print their way out of debt like we can, as unpleasant as that will be.
Ours, for what it's worth, will be the last AAA rating to go.
16 December 2011 12:10AM
SORT YOUR MESS OUT, AND DO US ALL A FAVOR AND GO F.... YOURSELF´S..., NOW THE ONE´S WHO HAVE TO PAY THE MESSING AROUND ARE THE ONE´S WHO BARELY CAN SURVIVE...
16 December 2011 12:11AM
The EU leaders want to tax anything that moves to get Europe out of the mess.
Trying to tax yourself out of out of a recession is like a man standing in a bucket and trying to lift himself up.......
16 December 2011 12:11AM
I have some nice peppers to share. The rich are delicious when eaten with a delicate pepper sauce.
16 December 2011 12:12AM
absolutely! plenty of profits and jobs!
16 December 2011 12:12AM
Socialism or barbarism.
It's that simple.
16 December 2011 12:13AM
Capitalism is finished in its present form.
The only solution is radical reform and that means an end to market speculation on abstract financial instruments which make nothing but money, and an end to socialism for the rich and penuary for the poor.
If nothing happens then the whole system will collapse under its own weight, since there isn't enough money in the world to actually pay down the various debts owed, even assuming they even know who owes what and to whom.
Let those who were happy to speculate on failure both personal and sovereign take the hit, otherwise the ruling classes run the risk of social unrest and ultimate revolution across the western world in their continuing attempt to squeeze the last droplets of blood from the proverbial stone.
16 December 2011 12:16AM
Perhaps the average annual 10% growth rate of the Chinese economy for the last thirty years where much of the industry is still state owned and inefficient but subsidised by the central state should make these ECB bureaucrats reflect that maybe it doesn't always matter what colour the cat is as long as it catches mice.
16 December 2011 12:16AM
God help us,this cant happen again....I was born in the Great Depression of the 1930's, seems that life has come around again and bit my arse....
They used to tell us
To save for that dream
So we saved all the time
For once we had a bankroll
Now it’s gone
Mister can you spare a dime
We saved like crazy
To realise our dreams
A vast fortune in
Dollars and dimes
But the sly crooks
In Wall Street
Suckered our dreams
Mister, can you spare a dime?
For once we trusted bankers
With their towers in the sky
Once trust bankers
Now they’ve gone
Mister, can you spare a dime?
Once we trusted government
To come to our aid and
Save our nickels and dimes
Once we trusted politicians
Now that’s gone
Mister, can you spare a dime
Peter, can you spare a dime
16 December 2011 12:17AM
The IMF lost whatever credibility it had left when it appointed another european professional politician as its head.
Lagarde is posturing so that a political career remains open to her in France.
Pathetic.
It is impossible to believe that Noyer did not clear his comments with Sarkozy.
This will just be the beginning of French retaliation.
If I were HMG I would expect that every arrangement we have with France is now effectively over, from defence through to customs controls I expect France to undertake a series of "reviews" next year.
Then there will be the retaliation via the EU.
Sarkozy is about to throw all the toys out of his pram, and if the situation wasn't so serious it would be comical.
16 December 2011 12:18AM
Just look at who owns them, it's not like there isn't any vested interests at play!
It doesn't help that the US lied about how much they pumped into the banks, or that nothing ever got fixed from 2007, so that MF Global can disappear $1 billion, and when asked by the Senate committee hearing, as happened today, say, 'It wasn't a problem with the system sir', and for the senator to agree and carry on with the questioning of where the money went. No, it doesn't help us when they are too busy helping themselves.
16 December 2011 12:18AM
Far from a Daily mail moment I'd suggest.
One of the more lucid and temperate posts round these parts. I'm with you all the way.
16 December 2011 12:18AM
"No, not a 1930's slump, an 1870s one, which would take the depression right through to 2031."
Whether it's the 1930s or the 1870s/80s may well depend on whether the slump leads to global war and rearmament.
16 December 2011 12:19AM
It was reported on Have I got News for You a couple of weeks ago that Germany has already printed Marks. And you know Ian Hislop, he would not allow that to be broadcast if it was not true as that wonderful man has had his balls sued off via Private Eye and BBC are even more careful.
So the French are left with a rather large load to carry. So offloading.
16 December 2011 12:20AM
this is where the Gold standard will make a come back! buy Gold/Silver coins,bars!
16 December 2011 12:21AM
A brilliant adaptation.
With your permission, I would like to send it to others
16 December 2011 12:22AM
You know the worst thing about this apocolyptic gloom...?
It's that the neo-con Glenn Becks of the world will feel justified in saying they were right all along - about everything.
Maybe I'll start taking his advice and fill my basement with water, tinned food and ammo for my assault weapons. Actually, maybe I'll build a basement first
16 December 2011 12:22AM
I think you're right. Capitalism is based on exploitation of natural resources, at its base, and those resources have run out.
Time to think about a "Zero-profit trade" model, where goods and services are exchanged on an even-basis without large profits. Many such co-operatives exist in the US. They only run afoul of the IRS when any profit is not revealed by ill-kept books. With the demise fo strong central governments (no one will be able to pay for their support), co-operatives will be the norm.
16 December 2011 12:23AM
You're dead right
Kind of had a bit of a rant there
Just really getting fed up with it all now.
Doesn't seem an end to it..... what I find really soul destroying is the Daily Express/Mail/Sun mentality everyone is adopting.
What I would find really refreshing is for the working class to wake up, stop blaming people with even less than them and start demmanding this complete cock up is sorted out without the little guy getting robbed blind and kicked onto the street.
The "middle class" should get off the fence now the likes of Kirsty Allsop have done a bunk and left them holding the baby too.
I hate using class but as far as I see it there is a class of scum that has been taking us all for mugs and it's about time we turned our back on them and their little protection rackett.
Sorry if I'm ranting here by the way!