The managing director of the International Monetary Fund (IMF), Christine Lagarde, has urged China and other countries to help prevent Europe's debt crisis from spreading around the world and causing a "lost decade" of global uncertainty and financial instability.
Speaking at the International Finance Forum in Beijing, Lagarde said it was up to developed nations to carry the burden of restoring economic growth and confidence.
"If we do not act boldly and if we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability, and potential collapse of global demand," she said. "Ultimately, we could run the risk of what some commentators are already calling the lost decade."
Lagarde said the global economy was suffering from permanent "adverse feedback loops" -- that is, the downturn caused when weakening financial systems and economic recession feed off of each other.
"We believe that the world economy has entered a dangerous and uncertain phase," Lagarde said.
"Adverse feedback loops between the real economy and the financial sector have become permanent, and unemployment -- as I have just mentioned in relation to the United States of America because it is unusual -- has really advanced significantly unabated and remains unacceptably high."
Economists explain that an "adverse feedback loop" occurs when the production of real goods and services slows down in the midst of a financial crisis. That was the case during the global economic crisis of 2008, and it continues to be the case in 2011 in the midst of Europe's banking and sovereign debt crisis.
In such situations, economists say, recessions tend to be more severe and are followed by slower recoveries than ordinary recessions.
Working With Beijing
Lagarde's remarks come at the start of a two-day visit to China focusing on what Beijing can do to help alleviate the global impact of Europe's deepening debt crisis.
Her talks with Chinese officials were expected to include the issue of possible Chinese contributions to a bailout fund, the European Financial Stability Facility, to help debt-laden countries in the eurozone.
"I'm very pleased to see that the Europeans have decided to accelerate the work and to make sure that all the guidelines and all the terms and conditions applicable to the leveraging effect that they have conceded will be in place before the end of November so that the [European Financial Stability] fund is actually operational and can, I suppose, be raising funds as of December," Lagarde said.
The IMF chief also urged China to take steps to increase the value of its currency, the renminbi or yuan, against the U.S. dollar and the euro.
"Reform of the financial system continues to be important and, as we've said before, China also needs a stronger currency in real effective terms," she said. "But there is progress on that front as well."
Will Italy Follow Greece?
Lagarde's visit to China takes place amid growing concerns about the sovereign debt crises in eurozone countries like Greece and Italy.
Italian Prime Minister Silvio Berlusconi on November 8 promised to step down, but only after parliament passes strict austerity measures demanded by the European Union to reduce the country's crippling debt.
But Berlusconi's promise to resign failed to raise optimism about Italy's ability to carry out long-promised reforms. As a result, Italy's borrowing costs reached breaking point with yields on 10-year Italian government bonds topping 7 percent -- a level generally considered unsustainable.
Analysts say Italy has reached the point at which Greece, Ireland, and Portugal had been forced to seek a rescue package. Teetering on the verge of needing a massive bailout that Europe cannot afford to give, Italy has replaced Greece at the center of the eurozone debt crisis.
EU Economic and Monetary Affairs Commissioner Olli Rehn said Italy's economic and financial situation was "very worrying."
Meanwhile, EU inspectors arrived in Rome as part of a monitoring mission aimed at ensuring Italy carries out economic reforms as part of an agreement reached at a G20 summit last week.
Greek lawmakers also continued to struggle to reach agreement a 100-day consensus government needed for Athens to implement unpopular austerity measures required under a rescue deal negotiated by the EU on October 27.
Under that 130 billion-euro ($178 billion) deal, Greece's creditors have agreed to a "voluntary" 50 percent write off of Greek debt by private-sector bondholders.
Late on November 9, the office of President Karolos Papoulios announced that a new prime minister had not yet been selected and that talks would continue into November 10.
Meanwhile, outgoing Prime Minister George Papandreou handed in his formal resignation to Papoulios. In a televised farewell statement, Papandreou expressed optimism that the country's political parties would be able to come to an agreement and keep Greece "safely in the euro."
"With the formation of this new government, we send a strong message to our partners and the international community that we Greeks know how to take responsibility," he said. "We know how to cooperate. During difficult times, we roll up our sleeves and unite."
Papandreou's resignation comes at the midpoint of his term, which began in 2009. Upon taking office, he inherited a debt twice as large as what he, and the Greek public, had been led to believe.
compiled from agency reports
Speaking at the International Finance Forum in Beijing, Lagarde said it was up to developed nations to carry the burden of restoring economic growth and confidence.
"If we do not act boldly and if we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability, and potential collapse of global demand," she said. "Ultimately, we could run the risk of what some commentators are already calling the lost decade."
Lagarde said the global economy was suffering from permanent "adverse feedback loops" -- that is, the downturn caused when weakening financial systems and economic recession feed off of each other.
"We believe that the world economy has entered a dangerous and uncertain phase," Lagarde said.
"Adverse feedback loops between the real economy and the financial sector have become permanent, and unemployment -- as I have just mentioned in relation to the United States of America because it is unusual -- has really advanced significantly unabated and remains unacceptably high."
Economists explain that an "adverse feedback loop" occurs when the production of real goods and services slows down in the midst of a financial crisis. That was the case during the global economic crisis of 2008, and it continues to be the case in 2011 in the midst of Europe's banking and sovereign debt crisis.
In such situations, economists say, recessions tend to be more severe and are followed by slower recoveries than ordinary recessions.
Working With Beijing
Lagarde's remarks come at the start of a two-day visit to China focusing on what Beijing can do to help alleviate the global impact of Europe's deepening debt crisis.
Her talks with Chinese officials were expected to include the issue of possible Chinese contributions to a bailout fund, the European Financial Stability Facility, to help debt-laden countries in the eurozone.
"I'm very pleased to see that the Europeans have decided to accelerate the work and to make sure that all the guidelines and all the terms and conditions applicable to the leveraging effect that they have conceded will be in place before the end of November so that the [European Financial Stability] fund is actually operational and can, I suppose, be raising funds as of December," Lagarde said.
The IMF chief also urged China to take steps to increase the value of its currency, the renminbi or yuan, against the U.S. dollar and the euro.
"Reform of the financial system continues to be important and, as we've said before, China also needs a stronger currency in real effective terms," she said. "But there is progress on that front as well."
Will Italy Follow Greece?
Lagarde's visit to China takes place amid growing concerns about the sovereign debt crises in eurozone countries like Greece and Italy.
Italian Prime Minister Silvio Berlusconi on November 8 promised to step down, but only after parliament passes strict austerity measures demanded by the European Union to reduce the country's crippling debt.
But Berlusconi's promise to resign failed to raise optimism about Italy's ability to carry out long-promised reforms. As a result, Italy's borrowing costs reached breaking point with yields on 10-year Italian government bonds topping 7 percent -- a level generally considered unsustainable.
Analysts say Italy has reached the point at which Greece, Ireland, and Portugal had been forced to seek a rescue package. Teetering on the verge of needing a massive bailout that Europe cannot afford to give, Italy has replaced Greece at the center of the eurozone debt crisis.
EU Economic and Monetary Affairs Commissioner Olli Rehn said Italy's economic and financial situation was "very worrying."
Meanwhile, EU inspectors arrived in Rome as part of a monitoring mission aimed at ensuring Italy carries out economic reforms as part of an agreement reached at a G20 summit last week.
Greek lawmakers also continued to struggle to reach agreement a 100-day consensus government needed for Athens to implement unpopular austerity measures required under a rescue deal negotiated by the EU on October 27.
Under that 130 billion-euro ($178 billion) deal, Greece's creditors have agreed to a "voluntary" 50 percent write off of Greek debt by private-sector bondholders.
Late on November 9, the office of President Karolos Papoulios announced that a new prime minister had not yet been selected and that talks would continue into November 10.
Meanwhile, outgoing Prime Minister George Papandreou handed in his formal resignation to Papoulios. In a televised farewell statement, Papandreou expressed optimism that the country's political parties would be able to come to an agreement and keep Greece "safely in the euro."
"With the formation of this new government, we send a strong message to our partners and the international community that we Greeks know how to take responsibility," he said. "We know how to cooperate. During difficult times, we roll up our sleeves and unite."
Papandreou's resignation comes at the midpoint of his term, which began in 2009. Upon taking office, he inherited a debt twice as large as what he, and the Greek public, had been led to believe.
compiled from agency reports