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Greece’s Debt: Lagarde launches new round of argument with Schaeuble

Managing director of the International Monetary Fund, Christine Lagarde, said that she disagrees with German Finance Minister Wolfgang Schaeuble over Greece’s financial problems.

“I am not aligning myself with Minister Schaeuble who says that Greece’s problem is not debt but productivity,” Lagarde said in an interview to conservative-leaning American Enterprise Institute in Washington on Monday.

Lagarde said also that the effects of the 2008 financial crisis are still being felt. She cited
a new IMF study showing global productivity has slowed to 0.3 percent over the last decade, lower than the pre-crisis average of about 1 percent growth per year.

“Had productivity growth followed pre-crisis trends,” Lagarde said “the overall GDP in advanced economies would be about 5 percent higher.”

Lagarde attributed the slowdown in labor productivity — the amount of goods and services produced by an average worker per hour — to three major headwinds: an aging global population, the slowdown in international trade, and the lasting impact of the 2008 financial meltdown.

The slowdown has been particularly abrupt in continental Europe, where five Eurozone member countries — Greece, Portugal, Ireland, Spain and Cyprus — required various emergency bailouts after being unable to refinance their sovereign debt.

Lagarde said strong policy actions, such as government-backed innovation, may be required to reverse the slowdown. She said that for example, ramping up research and development by 40 percent could increase the gross domestic output (GDP) in advanced economies by as much as 5 percent, significantly improving demand at the same time in developing economies.

According to Voice of America, Christine Lagarde made these comments just two weeks before the World Bank and IMF annual spring meeting, at which member countries discuss challenges facing the global economy and ways to ensure financial stability around the world.

PS Thank Goodness, it’s the debt and not Greece’s competitiveness. Because by such low salaries of 3-4 euros per hour, Christine Lagarde cannot say “wages needs to decrease further.” Can she?

But that’s not important after all. Important is that the IMF starts a new round of argument with the Eurozone in general and Schaeuble in particular that will lead to a new delay in conclusion of second review. At the cost of Greece in general and Greeks in particular.

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