The Multilateralist

The IMF and the European Commission are not on the same page

In her headline-grabbing speech at Jackson Hole, IMF chief Christine Lagarde told Europe to recapitalize its banks, pronto: [B]anks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the ...

In her headline-grabbing speech at Jackson Hole, IMF chief Christine Lagarde told Europe to recapitalize its banks, pronto:

[B]anks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization—seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns.

Not so, says the European Commission, a bit frostily:

Asked if Europe should do more on recapitalisation of banks than it had already done, a Commission spokesman said, "I don’t think so."

"This discussion has already taken place between the EU and the IMF and the IMF is well aware of the results and the follow-up decided after the stress-tests," Commission spokesman Amadeu Altafaj said.

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