IMF Managing Director Christine Lagarde said the euro area is stronger now than it was during the last financial crash in 2008, but acknowledged more work needed to be done to protect the eurozone from “unexpected economic storms”. Speaking at a conference at the Bank of France in Paris, she said: “It is not resilient enough. “Its banking system is safer, but not safe enough. “Its economic well-being is greater overall, but the benefits of growth are not shared enough.”
Back in January, the IMF made its second global growth downgrade in three months, pointing the blame to trade tensions between China and the United States and weakness across eurozone nations.
The IMF predicted the global economy to grow at 3.5 percent in 2019 and 3.6 percent in 2020, down 0.2 and 0.1 percentage point respectively from last October’s forecasts.
Addressing the Bank of France today, Ms Lagarde urged eurozone countries to build a shared bank deposit insurance system to help build a defence system.
Even though euro zone countries have shared a common currency for two decades, their financial systems remain fragmented, the IMF chief said.
Ms Lagarde said: “It is clear what is left to be done: establish common deposit insurance.
“We can find ways to resolve our legitimate national concerns.
“I urge euro area leaders to reignite the discussion, to negotiate in good faith and make the difficult compromises, to unlock the full potential of the banking union.”
The European Deposit Insurance Scheme, or EDIS, has been in the works for several years and already includes a single supervisor and a resolution scheme.
But countries have struggled to reach an agreement because Germany, the Netherlands and other northern countries fear it could mean they would be left liable for the repayment of deposits in countries like Italy, Greece or Portugal.
Ms Lagarde has previously issued a warning about a disorderly Brexit and shared concerns for the UK economy should Britain leave the bloc without a deal.
She said the “most significant near-term risk to the UK economy” was leaving the EU without a deal and a framework for the future relationship with Europe.
The IMF head added that others in Europe will be affected by Brexit to “varying degrees”.
She said: “All likely Brexit outcomes will involve net costs for the UK economy.
“But the higher the impediments that arise in the new relationship with Europe, the higher the cost.”
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