Thursday, November 10, 2011

Lagarde urges Italy to sort crisis out, China to help on world stability

The head of the International Monetary Fund urged Italy today to act quickly fill its damaging political vacuum, and China said it was willing to help maintain global financial stability that was being threatened by the euro zone crisis.

IMF Managing Director Christine Lagarde spoke during a visit to China as Rome politicians scrambled to find a replacement for Berlusconi, who has said he will step down when parliament approves reforms aimed at placating markets.

"No one exactly understands who is going to come out as the leader. That confusion is particularly conducive to volatility," Lagarde told a news conference in Beijing.

"So from my perspective, political clarity is conducive to more stability and my objective from the Fund's point of view is better and more stability."

Premier Wen Jiabao told Lagarde that Europe's sovereign debt crisis was a serious challenge to the world's economic recovery, and had increased financial risks for developed economies, Chinese state media reported.

"China supports the measures taken by the European Union, European Central Bank and IMF to deal with the crisis, and is willing to work with all parties to discuss effective cooperative measures to maintain global financial stability," Xinhua news agency paraphrased Wen as saying.

China remains focused on maintaining its own relatively fast, stable growth, Wen added.

Lagarde, a former French finance minister, declined to comment on a Reuters report that German and French officials have discussed plans for a radical overhaul of the European Union to create a more integrated and potentially smaller euro zone.

She also said she believed Chinese authorities were prepared to let the yuan appreciate further, as demanded by many US and other western politicians who accuse Beijing of holding its currency artificially low to give an unfair advantage to its exporters.

"My understanding is that the authorities are prepared to let that appreciation continue in the months and years to come," she said.

"Certainly from our perspective, with the goal of stability and the solid, balanced and sustainable growth that we pursue, clearly that's welcomed and encouraged."

Lagarde, who also met vice Premier Wang Qishan, said she had in-depth discussions with China's central bank chief Zhou Xiaochuan, a leading advocate of internationalizing the Chinese currency.

But she said it was too early to include it in the IMF's Special Drawing Rights unit, a basket of four currencies – US, dollars, euros, Japanese yen and sterling -- in which the bulk of global trade is designated.

"But there is a clear understanding that it will come in due course and that it will be a factor of the internationalization of the currency. In my view, there is a stronger signal that China is a key player but also an important partner in the composition of this ... easily convertible currency of the IMF," Lagarde said.