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LEFT OF CENTRE: It starts with the new generation


Christine Lagarde

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I know we are all still deeply concerned with the state of the global economy. Where do we stand?
Well, thanks to policy actions taken over the past year, we have seen some respite and some stabilization in financial conditions. But it is not all good news.
The recovery is still weak and uncertainty is still high. As the International Monetary Fund announced just a few days ago in our World Economic Outlook, we expect global growth of only 3.5 per cent this year, not much higher than last year.
Short-term pressures might have been alleviated but the longer-term pressures are still with us.
As I have said recently, and it bears repeating, we have avoided collapse but we need to guard against any relapse – 2013 will be a make-or-break year.
We all know the imperative: keep up the momentum on policy actions needed to put uncertainty to rest.
What does that mean? For the euro area, it means making firewalls operational; pushing ahead with banking union; continuing with difficult but necessary fiscal adjustment at the country level; and supporting demand, especially with further monetary easing.
For the United States, it means pulling together in the national interest and avoiding further avoidable policy mistakes, such as failing to agree on increasing the debt ceiling – and, for the United States and Japan, reaching agreement on medium-term debt reduction.
For the emerging and developing economies, faring better despite their concerns about continued turmoil and lack of decisive action in advanced economies, conditions differ greatly.
Some are more vulnerable than others, but they need to rebuild the policy space that has been used up in alleviating the crisis in recent times.
Over the past few months, I have visited all of the major emerging regions of the world: Africa, Asia, the Middle East, and Latin America. And I must say, the world looks very different from their vantage point. It is a world of challenges, yes, but it is also a world of “resilient dynamism”.
The burning question is this: how can we make sure that all regions grow strongly, converge rapidly, and succeed in meeting the aspirations of their people?
So how can we successfully navigate our way into this future world? There are no easy answers. I think it starts with the new generation on the march – in a world that is flatter, more closely-knit, more interconnected than ever before.
This new generation thinks differently. It Is a generation weaned on immediacy, democracy, and global reach of social media.
Perhaps we can lay the groundwork for future success by embracing some of the emerging values of this new generation – in particular, greater openness, stronger inclusion, and better accountability.
But old instincts die hard. At the first hints of improving sentiment, countries are enticed to retreat to the alluring comforts of their own backyards. They face the perennial temptation to look only at the national interest – with competitive devaluations, barriers to trade, and a zeal to protect their own financial institutions at the expense of others.
This is an anachronistic mindset ill suited to a modern global economy.
On the contrary, opening up and removing barriers has proven to be more efficient. I am thinking, in particular, about trade and financial integration.
Look at Asia, for example. This region has made tremendous progress in trade integration – trade within Asia tripled over the past decade. Regional trade among emerging Asian nations grew even faster, but it has lagged in financial integration. It is not investing enough of its own savings in its own future.
• Christine Lagarde is managing director of the International Monetary Fund.

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