Christine Lagarde, the IMF's managing-director, said the outlook had darkened suddenly over the summer. "There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken," she said. "The spectrum of policies available is narrower because a lot of ammunition was used in 2009. But if governments, institutions and central banks work together, we'll avoid recession," she told Der Spiegel. The comments come at the start of a dramatic week for the eurozone as Italy prepares to roll over record sums of debt and Germany's constitutional court issues its long-awaited verdict on the legality of the EU's bail-out machinery. Markets are already tense after the EU-IMF 'Troika' withdrew abruptly from Athens on Friday, accusing the Greek government of failing to comply with rescue terms. Mrs Lagarde said the US has scope to "abandon short-term austerity and introduce some measures to drive growth" provided the country lays out a credible debt strategy over the medium term. She said Europe needs to take its foot off the fiscal brake and shift to "growth-intensive measures" until the danger has passed, insisting that Germany has leeway to "stimulate demand".
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Monday, September 5, 2011
Christine Lagarde, the IMF's managing-director, said the outlook had darkened suddenly over the summer. "There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken," she said. "The spectrum of policies available is narrower because a lot of ammunition was used in 2009. But if governments, institutions and central banks work together, we'll avoid recession," she told Der Spiegel. The comments come at the start of a dramatic week for the eurozone as Italy prepares to roll over record sums of debt and Germany's constitutional court issues its long-awaited verdict on the legality of the EU's bail-out machinery. Markets are already tense after the EU-IMF 'Troika' withdrew abruptly from Athens on Friday, accusing the Greek government of failing to comply with rescue terms. Mrs Lagarde said the US has scope to "abandon short-term austerity and introduce some measures to drive growth" provided the country lays out a credible debt strategy over the medium term. She said Europe needs to take its foot off the fiscal brake and shift to "growth-intensive measures" until the danger has passed, insisting that Germany has leeway to "stimulate demand".
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The FTSE 100 tumbled 3.6pc - 189.45 points - to close at 5,102.58 after investor confidence was knocked by an unexpectedly sharp fall in services sector growth in August.
The Markit/CIPS services purchasing managers' index fell to 51.1 in August from 55.4 in July, the biggest drop since the foot and mouth crisis a decade ago. Economists were alarmed by the scale of the fall, which had been far larger than expected and triggered fears that the UK is now on course for a double-dip recession.
David Noble, chief executive of CIPS, described the decline in services growth as "eye-watering". Accounting for three-quarters of the UK economy, the services sector has a crucial impact on gross domestic product figures.
Investor confidence was also dented by the news that Royal Bank of Scotland, HSBC and Barclays are being sued by the US Federal Housing Finance Agency for a combined $196bn (£121bn) for their role in the sale of toxic mortgage debt to Fannie Mae and Freddie Mac, the American home loan financial institutions, in the run-up to the financial crisis.
Investors across Europe were also in cautious mode as key indices in Germany and France suffered heavy losses.
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