24 Jan 2012

1930s spiral warning issued by IMF chief

9:01 am on 24 January 2012

IMF managing director Christine Lagarde says the world faces an economic spiral reminiscent of the 1930s unless action is taken on the eurozone crisis.

Ms Lagarde also warned of a danger of rising unemployment if governments did not act together.

She said in Berlin that the International Monetary Fund needs 500 billion euros more to help sustain those countries worst hit by the eurozone crisis.

Ms Lagarde, who met Chancellor Angela Merkel on Monday, said that the eurozone needed a "larger firewall" to prevent the debt crisis spreading.

In a BBC interview, Ms Lagarde said now was the time to act in order to avoid a 1930s-style depression.

''Looking at it from this perspective,'' she said, ''2012 must be a year of healing. But as Hippocrates put it long ago: 'Healing is a matter of time, but it is sometimes also a matter of opportunity.'

''And today, it has to be an opportunity of our own making. Otherwise, we could easily slide into a 1930s moment.

''A moment where trust and co-operation break down and countries turn inward. A moment, ultimately, leading to a downward spiral that could engulf the entire world.''

To spur growth, she called indirectly on the European Central Bank to lower interest rate. With inflation falling sharply, ''additional and timely monetary easing will be important,'' she said.

However, she added that there was still a chance of a resolution to the crisis.

''I remain ever hopeful,'' she said. ''I believe we can avoid such a scenario and I say this for a simple reason: we know what must be done.

''Although the economic outlook remains deeply worrisome, there is a way out. Now the world must find the political will, the collective will, to do what it knows must be done.''