IMF’s Lagarde Urges Quick US Resolution of Debt Crisis

Posted July 26th, 2011 at 9:50 am (UTC-5)
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International Monetary Fund chief Christine Lagarde says the United States needs to quickly resolve its debt limit crisis because the “consequences would be far-reaching” if it does not.

In a speech Tuesday to the Council on Foreign Relations in New York, Lagarde said U.S. congressional leaders and President Barack Obama need to reach agreement “as rapidly as possible” to raise the nation’s $14.3 trillion borrowing limit.

Absent an increase in the debt ceiling, the U.S. runs the risk of defaulting on its financial obligations a week from now. Lagarde said that a U.S. default would be “a very, very, very serious event, not just for the U.S., but the world economy.”

But Lagarde chose to stay out of the acrimonious political debate in Washington over spending cuts, taxes and increasing the debt ceiling. She said she would not endorse any of the competing plans to resolve the stalemate.

While she said the U.S. debt issue needs to be resolved, she also warned against steep budget cuts that are “unduly hasty,” because she said the country “could face another jobless recovery” that might be advantageous for corporate and financial interests, but not unemployed workers.

Lagarde, the former French finance minister, took over as managing director of the IMF three weeks ago. She praised European leaders for working together last week to help solve Greece’s financial woes as they approved the country’s second bailout in two years. She called the agreement “a major shift in the European construction.”

She said that resolution of sovereign debt issues in Greece, the U.S. and elsewhere is only one of three major issues facing world economies, along with economic growth and social instability.

She said growth throughout the world would remain at about an annual rate of 4 to 4.5 percent through 2012, but that it is unevenly spread across the globe, with some countries doing much better than others. She said economic advancement cannot occur without creation of more jobs, because that would in turn lead to increased social instability.

The 55-year-old IMF chief said the risk of such instability is “common around the world.”