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22 May 2012

WSJ: IMF chief, OECD call for more euro debt-sharing


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International Monetary Fund head, Christine Lagarde, called on eurozone governments to accept more common liability for each other's debts, saying that the region urgently needs to take further steps to contain the crisis.


"We consider that more needs to be done, particularly by way of fiscal liability-sharing, and there are multiple ways to do that", Ms Lagarde told a press conference in London. Her comments came an hour after the Organisation for Economic Cooperation and Development had, for the first time, endorsed joint bond issuance in its latest Economic Outlook. Support from two international, multilateral organisations for the idea is likely to intensify the pressure on German Chancellor, Angela Merkel, to drop her resistance to it.

A German government source, meanwhile, repeated that common eurozone bonds aren't allowed by the current EU Treaty, while a spokesman for the European Commission said they aren't "an immediate solution". Neither Ms Lagarde nor the OECD called outright for anything so simplistic. Ms Lagarde balanced her remarks by stressing that there was no way around the need to cut budget deficits, and that countries that had lost the confidence of the international community had to front-load those measures. The OECD, meanwhile, warned France specifically that it couldn't hope to borrow its way out of the crisis. The OECD's vision of joint debt issuance was that it should be used first to recapitalise the region's banks, as a measure that would loosen the interconnection between government debt and the balance sheet problems of banks in the eurozone's weaker economies. But it also noted that bonds issued in this context could also be seen as a first step to greater fiscal integration.

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© Wall Street Journal


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