IMF chief: Some euro countries can boost growth

[January 28, 2012]  DAVOS, Switzerland (AP) -- The head of the International Monetary Fund said Saturday that some countries that use the euro have the flexibility to boost growth to help shore up the ailing eurozone economy, which is widely-expected to sink back into recession.

Speaking at the World Economic Forum in Davos, Christine Lagarde said the 17 nations that use the euro should not undertake dramatic spending cuts to reduce debts at the same pace or to the same degree.

"Some countries have to go full-speed ahead to do this fiscal consolidation, but other countries have space and room," said Lagarde.

Though conceding that there weren't many of them, Lagarde said it was important that those that have the headroom should explore how they can boost growth.

She carefully avoided naming any countries, but likely had in mind Germany, Europe's largest economy and a major world exporter. She didn't specify how to boost growth either or how one eurozone country could help others grow.

In addition, Lagarde said members of the eurozone should continue the drive to tie their economies closer together over the months and years ahead.

Lagarde also repeated her belief that the Washington, D.C.-based fund needs more resources if it is to help restore stability in the global economy. The IMF has said it needs around $500 billion more in financial firepower -- a request that has met with mixed response and notably resistance from the United States.

Britain's finance minister George Osborne said there was "a case" for boosting the IMF's resources.

Osborne said the eurozone had two things to do over the coming weeks to get a handle on its crisis: Greece's debt-reduction talks with private creditors had to be concluded soon; while the creation of a proper "firewall" of measures aimed at stopping the crisis from spreading was "key to unlocking further confidence."

Europe's debt crisis are a major concern of the business and political leaders gathered for the annual, invitation-only event at Davos.

Increasing numbers of people are questioning the purpose of the event as income inequalities grow worldwide. Protesters from the Occupy movement that started on Wall Street have camped out in igloos at Davos and are planning a demonstration later Saturday to call attention to the needs of the poor and unemployed.

Economist Nouriel Roubini, widely acknowledged to have predicted the crash of 2008, said the fallout from that crisis could last the rest of this decade and warned that without major policy changes things can still get much worse.

"We have to shift our investment from things that are less productive like the financial sector and housing and real estate to things that are more productive like our people, our human capital, our structure, our technology, our innovation," he said in an interview with The Associated Press.

"Once you have too much debt in the public and private sector, the painful process could last up to a decade, where economic growth remains weak and anemic and sub-par until we have cleaned up the balance sheet and invested in the things that make us more productive for the future," he said.

Also in Davos on Saturday, World Trade Organization chief Pascal Lamy is meeting with leading trade ministers to discuss the deadlocked Doha Round of trade talks.

[Associated Press; By PAN PYLAS]

Frank Jordans and Edith M. Lederer contributed to this report.

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