EU: Financial Market Crisis Impact Protracted
Strauss-Kahn Tells MEPs Impact Of Financial Market Crisis Will Be Protracted
IMF Managing Director Dominique Strauss-Kahn told MEPs on Thursday that while the worst of the financial market crisis itself was probably over, the impact on the real economy would continue at least for the rest of the year. He also spoke about the food price crisis and reform of financial market supervision.
Speaking to an informal meeting of the Economics Committee, Mr Strauss-Kahn said "there are good reasons to think the largest part of disclosure [by financial institutions] is done and the worst news behind us." But the effects of the financial turbulence on the wider economy were not behind us: "There is a protracted influence on consumer and investment behaviour from the credit squeeze... that we will have to live with for a while: optimists say until the end of the year, pessimists say mid-2009."
There was, he said, no sign of stabilisation on the US housing market, and its problems would go on being transmitted to the wider US economy. In the IMF's view, neither Europe nor emerging markets had "de-coupled" from the US economy and would therefore not avoid the impact of the US slowdown, though in the case of China and India, growth would still be "huge", if slower than before.
"If we stay with national answers, we will fail."
Questions from Economics Committee Chair Pervenche Berès (PES, FR), Ieke van den Burg (PES, NL) and Margarita Starkevičiūtė(ALDE, LT) focused on financial supervision. Mr Strauss-Kahn said the reforms in financial market supervision proposed by the G7's Financial Stability Forum were good ideas, but, "because of globalisation, it is not enough to implement them just in developed countries. If you do not have the same supervision elsewhere, you achieve almost nothing." Political will was needed for a multilateral approach: "if we stay with national answers, we will fail." There was a role for the IMF, not in trying to act as a centralised global market supervisor, but in monitoring the supervisory arrangements in different countries and regions and reporting on what works best, he said.
Food prices, biofuels and agricultural policy
Development Committee Chair Josep Borrell (PES, ES) raised the issue of the crisis caused by rising food prices in the developing world. There were, said the IMF Managing Director, long term causes, like increased prosperity in emerging markets, and short term ones, like some poor harvests - and the increased demand for biofuels. Without entering the discussion on their carbon output, he said, there were some biofuels in some places that could be economically beneficial, but "when in the US and Europe you have subsidised crops of corn or soya grown for fuel, you have to ask whether the land should be used for this or for feeding people."
Beyond short term aid for countries in real crisis, he said, "we all believe the market will solve problems ultimately, but when is ultimately? We cannot wait that long." He noted that several African countries had gone from being food exporters to importers and called for rational agricultural policies to be put in place, praising the example of Malawi, which had doubled its agricultural production in two years.
In the chair : Pervenche Berès (PES, FR)
Open meeting of the co-ordinators of the Economic and Monetary Affairs Committee