Hampson: Can Lagarde and the IMF save the Euro?

By: /
July 4, 2011

It is not up to Mme. Lagarde and the IMF to save Europe. Europe has to save itself by addressing two critical issues: (1)sovereign debt in the Mediterranean countries (Greece, Italy, Spain and Portugal), which is the result of a bloated welfare state, excessive regulation, tax evasion, and chronic government deficits; and (2) the European Union’s own internal structural imbalances caused by Germany’s export driven model of growth which depends on unsustainable import demand by its European partners. German consumers will have to spend more. The Mediterranean countries will have spend less and become competitive. Lagarde will have to tread carefully and not appear to play favorites, especially when it comes to French creditors who are biggest holders of Greek (junk) bonds.