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 The International Monetary Fund, which cut its global growth
forecasts for the third time this year this week, flagged Europe's
weakness as the top concern, a sentiment echoed by many
policymakers, economists and investors.
European officials in Washington for the IMF and World Bank annual
meetings sought to dispel the gloom, with European Central Bank
President Mario Draghi talking about a delay, not an end, to the
region's recovery.
Jeroen Dijsselbloem, the chairman of euro zone's finance ministers,
used the forum to propose a new "growth deal" for Europe offering
nations embarking on ambitious economic reforms more fiscal wiggle
room and low-interest EU funds.
"There is no reason for this gloominess about Europe," Dijsselbloem
told Reuters. "Those countries that have actually implemented the
strategy and done the reforms, have returned to growth, in southern
Europe, in the Baltics, in Ireland. Which once again proves that
reforms do not hurt growth, but help recovery quite quickly."
It would take months of political negotiations for the proposed pact
to take shape. In the meantime, a steady stream of poor economic
data looks set to keep Europe's partners on edge.
"The biggest risk to the global economy at the moment ... is the
risk of the euro zone falling back into recession and into crisis,"
British finance minister George Osborne told reporters.
U.S. Treasury Secretary Jack Lew repeated a familiar mantra that
nations with strong economies and sound public finances should do
more to shore up global demand.
"Demand and structural supply side reforms should go hand-in-hand to
catalyze stronger growth," he said in a statement.
DOUBTS ON PRESCRIPTION
Several officials, including Osborne, voiced skepticism about
infrastructure spending as the latest prescription for a world
economy that six years after the global financial crisis was still
struggling to find a firm footing. The IMF has said infrastructure
spending could give economies a near-term boost, while improving
long-term growth prospects as well.
The Group of 20 major industrial and developing powers agreed last
month to prop up growth over the coming years largely via targeted
public investment in infrastructure. But since then fresh evidence
of weakness in the euro zone, including in its powerhouse Germany,
has rattled financial markets and heightened the sense of urgency.
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"We as a group do not want to settle for mediocre growth," Canadian
Finance Minister Joe Oliver told reporters.
Global shares hit a eight-month low on Friday, while oil prices
skidded to their lowest level since 2010. After a 13-week rally, the
U.S. dollar ended lower for the week on the view the Federal Reserve
may have to delay tightening U.S. monetary policy.
"It's panic mode. Panic and capitulation," said Carsten Fritsch,
commodities analyst at Commerzbank.
GERMANY IN FOCUS
While several euro zone governments are hamstrung by excessive debt
and fiscal deficits, the IMF, the United States and other G20
members have repeatedly called on Germany to use its wiggle room to
ramp up spending and shore up sagging growth.
Berlin, however, has rejected such calls and stuck to its goal of
balancing the federal budget next year.
Finance Minister Wolfgang Schaeuble repeated in Washington his line
that Europe needed economic reforms not "writing checks." Yet
evidence of further weakness and a threat of recession might still
force Berlin's hand, senior officials told Reuters earlier this
week.
In contrast, France and Italy have announced budget plans that fail
to meet their deficit targets, and EU officials were engaged in
last-minute efforts to persuade Paris and Rome to tweak the drafts
to avoid likely rejection.
(Additional reporting by Krista Hughes, Randall Palmer and Ana
Yukhananov; Writing by Tomasz Janowski; Editing by Tim Ahmann and
David Chance)
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