In an interview with DW, Managing Director of the International Monetary Fund Christine Lagarde said she was optimistic about the fiscal future of Europe, but also warned that a lot of work still has to be done.
Asked whether she thought Germany would agree to be part of a fiscal union, Lagarde said: "In Europe, as the founders of Europe have observed, things happen through crisis. The crisis that the euro area went through has been transformational. There has been a renewed determination to form that eurozone around the currency, around a banking union, around a better integration of fiscal policies. I'm sure that the road ahead is going to continue to have bumps and hiccups and difficulties - but there will be a continued journey towards more integration."
She added that Europe is already moving towards much more fiscal integration: "As you know, a year ago, advocating banking unions sounded a bit like heresy. The situation has changed and there is clearly a desire to move towards union […], to implement a banking union with the appropriate steps, with the appropriate asset balance sheet review, with the stress testing, with the common back stop and with all the equipment of a proper banking union."
Regarding the situation in Greece, Lagarde said that the country now has a surplus. She pointed out that "it required very significant structural reforms and this is a process through which the country has gone with huge sacrifices, but hopefully they'll be turning the corner."
In the interview with DW, she also admitted: "I will tell you where we very publicly acknowledged that we had underestimated certain factors, and that's on the fiscal multiplier effect of combined fiscal consolidation around the euro area. We had underestimated the fiscal multiplier." Lagarde added: "We've always advocated discipline. When the objectives are set, they have to be respected. What we're also saying is that growth and fiscal policies that result in consolidation are not mutually exclusive. And what we're saying is that it is the pace of fiscal consolidation and the type of measures that are used to consolidate fiscally that need to be tailored in order to privilege growth."
According to Lagarde, a lot has to be done in order to prevent a repeat of 2008's global economic crisis. "We still collectively have a lot of work to do on the financial sector reform for instance. The financial sector's excesses, along with the interconnectedness that we had at that time, created the massive crisis that we've gone through in the last five years. That needs to be reformed and that reform needs to be completed. The mission is not yet accomplished," she said. In reference to the United States budget row, Lagarde warned that "for the largest economy in the world, it's a big global responsibility to address the issue and resolve it."
Christine Lagarde has recently faced criticism from developing countries and economies in transition, which complained that in the last financial year, 90 percent of IMF loans went to European countries. Lagarde commented: "What the entire world needs is stability. If you have a big chunk of the global economy that is in disarray, that is not being supported and where stability is not restored, it's hardship for everybody. […] It may well be that a few years down the road, in a couple of decades, we have to focus all our energies and resources on a particular region of the world. That's the nature of our mission. […] It's our mission to help countries that are in difficulties wherever they are and whatever they are."
Asked why Egypt hadn't received any loans, Lagarde explained: "What is absolutely needed for a partnership with the IMF is large political support and very strong dedication of the team to actually enforce discipline and make reforms that are needed to restore stability, and to create jobs for the people. As soon as that is there, we are ready to jump. We've worked a lot with the Egyptian people over the last few months and we will continue to do so."
The full interview will be broadcast on Sunday, October 6 on the news program Journal on DW TV channels.