JACKSON HOLE - The new head of the IMF warned on Saturday that the global economy risks falling back into recession and called for urgent coordinated policy action, including the mandatory recapitalization of European banks.
"Developments this summer have indicated we are in a dangerous new phase," International Monetary Fund Managing Director Christine Lagarde said at an annual gathering of global policymakers hosted by the Kansas City Federal Reserve Bank. "The stakes are clear; we risk seeing the fragile recovery derailed. So we must act now."
Two years after the end of the worst of the recent financial crisis, growth in both the United States and Europe is sputtering, and debt crises on both sides of the Atlantic have shaken public confidence in a global recovery.
Advanced economies must forge long-term plans to bring their debt under control, but at the same time should not pursue belt-tightening so fast that it imperils recovery, Lagarde said on Saturday.