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IMF and Germany play down tensions over debt crisis

International Monetary Fund (IMF) Managing Director Christine Lagarde (R) laughs with Germany's Finance Minister Wolfgang Schaeuble before a seminar at the annual meetings of the IMF and the World Bank Group in Tokyo Oct. 12, 2012.


Christine Lagarde and Wolfgang Schauble put on a show of unanimity on Friday in Tokyo, seeking to dispel impressions of high-level splits over the handling of the eurozone crisis.

A day earlier, the German finance minister had appeared to accuse the head of the International Monetary Fund of backpedalling on an earlier commitment to fiscal consolidation, after Ms. Lagarde endorsed a new study that found Brussels and the IMF had underestimated the impact of austerity measures on economic growth during the crisis.

But on Friday in Tokyo, during a televised debate hosted by the BBC, the pair – at the centre of a four-person panel – played down suggestions that there were fundamental differences between them.

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When asked whether Greece should be acting on the prescription of the IMF, or of Germany, Mr. Schauble said "there is no difference, never. It is impossible. We always agree."

Ms. Lagarde commented: "We work hand in hand. [The European Commission, the IMF and the European Central Bank are] on the ground at the moment, looking at what can be done, what should be done . . . over a decent, reasonable period of time."

Ms. Lagarde denied that the fund had shifted its approach, arguing that since her appointment as managing director last July, the IMF had argued consistently that fiscal adjustment in developed nations was necessary. "Call it adjustment, fiscal consolidation or austerity – it is exactly the same thing."

But timescales for that adjustment should vary, she said, according to factors such as the volume of debt involved, and the degree of "market pressure".

In the case of Greece, Ms. Lagarde paid tribute to a 14 percentage-point contraction in the country's fiscal deficit over the past three years, which she described as a "huge adjustment."

But she appealed for "a bit more time," alluding to the shrinking economy and very high interest rates on the country's debt.

Mr. Schauble said it would be premature to speculate on Greece without examining a pending report from the so-called troika of the EU, the IMF and the European Central Bank.

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The report, expected next month, will outline how closely Greece is sticking to its pledges of reforms designed to secure further funds from an international bailout.

But he warned that "one of the problems of Europe is that we always break expectations. We are now working with Greece to make sure that this time, against all experiences of the last couple of years, that they stick to what has been agreed".

In often lively exchanges, interrupted by a tremor just outside Tokyo registering 4 on the Richter scale, Ms. Lagarde described fiscal adjustment "as a marathon, not a sprint. It's not going to happen in a matter of a couple of years."

Peter Orszag, former U.S. budget director and now vice-chairman of global banking at Citigroup, extended the metaphor, suggesting that if the weather is "freezing, it might make sense to go back and get some warmer clothing".

"You will not win the marathon like that," Mr. Schauble said.

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