Tags: IMF | Europe | growth | economic

IMF: Europe Needs to Focus on Growth, Competitiveness

By    |   Tuesday, 19 Jun 2012 11:45 AM

Europe needs to undertake coordinated reforms across the region to jumpstart economic growth and boost competitiveness, the International Monetary Fund said in a research paper as world leaders gathered in Mexico for a Group of 20 summit to focus on the European debt crisis.

A revival of growth is needed to reverse "the vicious cycle of poor confidence, flagging growth, fiscal weakness and bank vulnerability," the IMF said, according to CNNMoney.

European countries must re-balance demand and competitiveness across the continent, allowing for higher inflation and wages in the stronger, northern economies like Germany, while holding down wages in the struggling, southern nations like Spain and Italy.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

The paper also calls for more flexible labor markets, to make it easier to fire and hire, and says monetary policy should "remain supportive."

"This is not a recommendation of simple fiscal stimulus — fiscal consolidation is inevitable — but of a combination of efforts to alleviate headwinds," the IMF said, according to CNNMoney.

The IMF paper comes as analysts complain that Europe’s leaders have been quashing the recovery by promoting austerity measures. Earlier this year, Europe’s leaders agreed to hold countries to budget targets in a bid to promote fiscal discipline, the report said.

Those austerity measures such as tax hikes and spending cuts have pushed some countries into recession, with Greece and Spain facing unemployment above 20 percent, raising the risk of social unrest.

While official figures showed the conservative New Democracy party came in first in Sunday’s Greek election, its narrow 2.7 percent margin of victory over the leftist anti-austerity SYRIZA bloc revealed a nation deeply split over austerity measures needed to receive 240 billion euros ($302 billion) in bailout money from the European Union and IMF, Reuters reported.

"My biggest fear is of a social explosion," said a senior adviser to the country's probable next prime minister, New Democracy leader Antonis Samaras. "If there is no change in the policy mix, we're going to have a social explosion.’’

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.



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