Lagarde urges rainy-day fund for euro-area to aid against shocks

BERLIN • International Monetary Fund (IMF) MD Christine Lagarde (picture) urged Europe to pursue further integration, including on spending, saying a closer union of euro-area countries would help counter rising populism and protectionism globally.

“A more unified euro-area can be a compass to prosperity for the region and a beacon of hope to the world,” Lagarde said in a speech yesterday in Berlin.

The IMF chief said the euro-zone has made progress on a capital-markets and banking union, two areas in which the fund is calling for greater integration. But she also encouraged the currency union’s members to push toward setting up a “central fiscal capacity” that would establish a “rainy-day fund” that members finance through annual contributions.

With the UK leaving the European Union, Lagarde’s proposal comes as Germany, France and other members debate how to strengthen the 19-country euro-area. While the notion of a central fiscal authority is “politically difficult”, monetary policy did too much of the “heavy lifting” during the last financial crisis and budget austerity worsened the problem, Lagarde said.

Lagarde has been urging countries to avoid being sucked into a global trade war that could undermine the broadest world recovery in years.

“Policymakers need to work constructively together to reduce trade barriers and resolve trade disagreements,” Lagarde said this month. “Economic history clearly shows that trade wars not only hurt global growth, but they are also unwinnable.” — Bloomberg