Counting the Cost - The Future of the IMF

Is Christine the answer?

With it being a relatively slow news day, much of the economic and political commentariat has focussed on who ought to and/or has a chance of replacing Dominique Strauss-Kahn as IMF chief. Everyone seems to have an opinion on this; there have been some sensible suggestions, and some totally left-field ones, such as Martin Kettle’s pitch for Peter Mandelson.

Much of the debate has centred around the issue of whether he or she ought to be European, or whether it was time for an emerging economy to take over the helm of the IMF, with China, Brazil and Turkey all pushing for a non-EU IMF chief. Allister Heath made a good point in his City AM column:

“the European-led IMF was always perfectly happy to force much harsher policies on emerging countries. These days, however, it is the Asian and other emerging nations that have put their houses in order and Europe and the US that continue to spend money they don’t have.”

However, as we know, Europe tends to prefer the status quo (regardless of whether the status quo is actually a good thing) and France’s finance minister Christine Lagarde has emerged as a clear favourite.

So is she the right person for the job?

We're sceptical. Yes, she speaks polished English, more Oxford than the typical thick French statesman's accent, which in combination with her background at US financial firms, give her some street cred in the anglo-saxon world (which is enough for the BBC to love her). And she has done a relatively good job in keeping the French economy stable. However, she's nonetheless firmly wedded to what can be described as the ‘bailout consensus’ and state intervetion which as we have pointed out multiple times is a blind alley, and there are plenty of people out there who seem to agree.

FAZ’s Heike Göbel today slams Lagarde’s statist outlook, and argues Germany ought to be supporting a more a more market-friendly voice:

“Lagarde is rooted in the French tradition, that when in doubt, one ought to argue for more coordination rather than for more competition. She is the advocate in chief for unbridled state assistance, and does not want private creditors to participate in the rescue of insolvent eurozone countries."

The Indy’s Sean O’Grady concurs:

“Impressive as she is, the French finance minister is… too steeped in the EU establishment and too much part of the French elite to be able to abandon the euro as an article of faith. For a clear-headed, dispassionate Singaporean, let us say, the decision on recommending that Greece leaves the euro would be a much less traumatic affair. And even if that were not the case, we might still be better off with someone for whom the idea that they are a Sarko crony could never stray into our minds. So while it is true that Ms Lagarde knows the eurozone's funny little ways, she might also be more blind to its failings.”

In fact, the IMF would probably benefit from having someone from outside of the eurozone’s political elite, not least since large parts of this elite - as we have documented - consistently failed to grasp how the single currency would work in practice, and has mis-judged the crisis ever since it broke.

Ultimately, whether this person is European or not is actually of secondary importance.

Strauss-Kahn Resigns: Sex Seems Too Expensive For Him

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By STAFF Writer
THURSDAY, May 19, 2011

Maintaining his innocence while battling with sexual charges, International Monetary Fund Chairman has resigned from his post, saying he served the post with “honor and devotion”.

He sent a letter to the IMF board, denying any involvement in sexual assault with a hotel maid. In his letter he said with “greatest possible firmness” that he was not involved in any sexual transgression, giving his resignation to protect the institution, which he (said) served with dedication and honor. He further emphasized on proving his innocence, devoting his time, strength and energy.

Mr. Strauss-Kahn said that he forced to resign with “infinite sadness.”

It was earlier reported that Mr. Strauss-Kahn was placed on a suicide watch, but one of his attorneys, William Taylor, said his client was in acceptable mental condition.

“It was serious, but good," said Taylor. "He is a strong man and he is committed to seeing this through."

The resignation suddenly bewildered IMF board, igniting dispute over a successor. Presently his deputy, John Lipsky, an American, will serve as acting managing director. There are many contenders already lined up where fast growing economic nations like China, Brazil and South Africa want to break Europe’s monopoly over the post.

German Chancellor Angela Merkel says developing economies can have their rights to fight for the post, but seeing the present turmoil in the eurozone demands a European IMF leader. On the other hand, Brazil's finance minister, Guido Mantega says the post should be filled on the basis on merit.

Related...

IMF leadership battle begins as chief resigns

Ouch!!!

Usually mild mannered Swedish politicians have certainly displayed an unusual willingness to communicate strong opinions on European political issues of late. After some forthright comments on twitter from foreign minister Carl Bildt on Lybia recently, we now have finance minister Anders Borg eviscerating Gordon Brown’s reputation and lingering chances of becoming the new head of the IMF.

Speaking to Jeff Randall on Sky News, Borg said:

“It would be difficult to have a person that is so responsible for the fiscal crisis in the UK at the helm of the IMF… a country with a 10% deficit is I think a little bit problematic… the IMF today is very much about restoring fiscal responsibility”

Borg went on to tell Svenska Dagbladet that:

“He has been one of those who has argued for the deficit politics that we now see the results of. It would be odd to argue for him.”

For Gordon Brown, the self-styled saviour of the world, that has got to hurt. Nevertheless, it's refreshing to hear politicians who are not afraid of speaking their mind.

Dominique Strauss-Kahn Resigns as Head of International Monetary Fund
THE DAILY TELEGRAPH: Dominique Strauss-Kahn has resigned as head of the International Monetary Fund, four days after being charged with the sexual attack of a Manhattan hotel chambermaid.

In a statement released by the Fund in the early hours of Thursday morning, Mr Strauss-Kahn said he needed to "devote all my strength, all my time, and all my energy to proving my innocence".

The 62-year-old Frenchman has been under intense pressure since being arrested in the First Class cabin of on an Air France jet on the tarmac of John F. Kennedy airport on Saturday afternoon.

He is being held at Rikers Island prison after being formally charged with seven crimes related to the alleged assault of a 32-year-old Guinean maid in his suite at the Sofitel earlier that day, including attempted rape and an illegal sexual act. » | Jon Swaine, New York | Thursday, May 19, 2011

IMF’s Strauss-Kahn Produces At NY Court For Sex Charges

By ETHAN Markoff
May 16, 2011

WORLD NEWS - International Monetary Fund chief Dominique Strauss-Kahn appeared at the court in New York for a sexual charge accused for an attempted to rape a hotel maid. Meanwhile, Mr. Strauss-Kahn denied the charge, dismissing it as a political conspiracy. It is noted that he had been seen a candidate in France's 2012 presidential election.

Adding insult to the injury, a similar complaint had been lodged by a French writer who said that Mr. Strauss-Kahn sexually assaulted her in 2002.

This is the first time when Mr. Straus-Kahn had appeared in court since he was pulled off a plane in May 14 for sexually abuse a hotel maid.

He was sitting at John F. Kennedy International Airport prepared to depart, shortly arrested and took a seat on a bench in Manhattan criminal court.

He is charged with unlawful imprisonment and a criminal sex act. However, 62 year-old Mr. Strauss-Kahn had denied the allegation. His lawyer Benjamin Brafman said he would plead not guilty at court.

According to New York Police Department, the 32-year-old hotel mail works at Sofitel hotel in midtown Manhattan who was attacked by IMF chief during his visit to the hotel.
The wood-lined courtroom was packed with journalists, general public and even a French consulate representative. Strauss-Kahn's lawyer Benjamin Brafman defended his client denying the allegation that Mr. Strauss-Kahn trapped the maid in a hotel and tried to rape her.
The accused victim used to work from last three years at the luxury Sofitel hotel alleged Mr. Strauss-Kahn suddenly Sunday and won a warrant against him to seek DNA evidence.

"He intends to vigorously defend these charges and denies any wrongdoing," Brafman told reporters.

The shocking news of one of the world’s most powerful men left IMA staggering just before the significant discussion over the debt crisis sweeping the eurozone.

Mr. Strauss-Kahn's wife, former French television journalist defended his husband, saying he was fenced in a political conspiracy and did not believe. She also asked for "decency and restraint".

The arrest triggered a reeling speculation across France over the authenticity of the allegation, as many think it might because of political motives. It is noted that IMF chief had been seen a strong political contender for France’s next year Presidential election.

However, the history of Mr. Strauss-Kahn is not spotless, as he was mired with controversy earlier. In 2008, he was noticed for an affair with a Hungarian IMF economist. He was loosely alleged for inappropriate behavior but the IMF concluded he had not exerted pressure on the lady.

Dominique Strauss-Kahn Political career

Managing Director of the International Monetary Fund, since 2007.

Governmental functions

• Minister of Industry and Foreign trade, 1991–1993.
• Minister of Economy, Finance and Industry, 1997–1999 (resignation).
  

Electoral mandates

Member of the National Assembly of France for Val d'Oise, 1986–1991 Reelected in 1997, was minister 2001–2007. Elected in 1986, reelected in 1988, 1997, 2001, 2002, 2007.

Regional Council

Regional councillor of Ile-de-France, 1998–2001 (resignation).

Municipal Council

• Mayor of Sarcelles, 1995–1997 (resignation).
• Deputy-mayor of Sarcelles, 1997–2007 (resigned on becoming Managing Director of the IMF in 2007). Reelected in 2001.
• Municipal councillor of Sarcelles, 1989–2007 (resigned on becoming Managing Director of the IMF in 2007). Reelected in 1995, 2001.

Agglomeration community Council

• President of the Agglomeration community of Val de France, 2002–2007 (resigned on becoming Managing Director of the IMF in 2007).
• Member of the Agglomeration community of Val de France, 2002–2007 (resigned on becoming Managing Director of the IMF in 2007).

Read more...

IMF Chief Facing Sarkozy's Smear Campaign

Repairing the Adulterated IMF Post-Strauss-Kahn

I wonder what our colleagues at the Bretton Woods Project would make of this. Before going to sleep last night, I caught news that IMF Managing Director Dominique Strauss-Kahn was held in New York en route to France on attempted rape charges [1, 2]. Having written about the big kahuna's peccadilloes before, this latest episode will probably surprise Americans more than those of us in Europe who've become accustomed to these sorts of allegations against DSK. Yet, alike with the Monica Lewinsky allegations, the magnitude of these claims invites initial disbelief. This news story has even topped Yahoo! News. When the IMF only receives popular coverage when an event like this happens, you know that it has a problem in getting the public to understand what it does as well as what kind of attention it receives. Pick your news outlet of choice: it may be a slow weekend, but DSK is front-page on nearly every one.

Much comment has already been made about the incident. While innocent until proven guilty is the operating principle, you can certainly argue that this accusation has damaged DSK's credibility mortally. There are of course many implications here:

1. His chances of being the Socialist Party standard-bearer for next year's French election against the UMP's Nicolas Sarkozy are now nugatory. Though he probably did not foresee the extent of it, offering DSK as IMF managing-director was a Sarkozy masterstroke in neutralizing a potential rival on the domestic political scene. Segolene Royal deux, mon ami

1. In his place, American First Managing Director John Lispky--formerly of JP Morgan and a securitization cheerleader in his earlier days [1, 2]--takes control. This certainly isn't the outcome most of us wishing for more diversity in IMF leadership want. However, this is mitigated by Lipsky indicating that he will step down at the end of August. Fancy that: a guy most clearly associated with promoting securitization prior to the crisis now has to deal with the fallout from their abuse and misuse.
2. On the bright side, the unlikely return of DSK and the stopgap term of Lipsky will put to test IMF indications of reform (including from DSK himself) to make it reflect the world's changing centre of economic activity. Your truly will certainly hold it to account in choosing its next chief from a developing country. Given the buildup in previous years, I can certainly assure you that developing countries will cause a ruckus if it doesn't happen this time around.
3. A non-European head would still come too late to limit IMF "mission creep." I have essayed on why the IMF should not bail out Greece, Ireland and Portugal since the causes of their crises were not balance-of-payments difficulties the IMF was designed for but fiscal ones. Hopefully, an LDC chief would resist calls from rich Western countries to misallocate funds meant for aforementioned BOP crises--especially contributions from LDC members.
4. DSK was already becoming antsy about Greece's similarly socialist leaders not living up to their end of the bargain. With this rapport now ended, the IMF's already limited powers of persuasion in keeping Greece in line will probably take another knock. Ironically, Sarkozy's efforts to keep EU bailouts a European affair will likely suffer a blow from successfully discrediting his erstwhile major rival. The IMF/EU/ECB troika with the possible exception of the ECB has taken its lumps. but is not terminally damaged to the point of not being able to work alongside each other.

Personal factors aside, IMF prescriptions will likely not change under whatever new leadership it will have in a couple of months. It may have eased somewhat on high neoliberal orthodoxy during his time in charge--especially when friends in high places rather than low places got in trouble--but conditionalities are still there that are quite harsh for the rest. Ask Greece. Still, one hopes that an LDC chief can signal a more truly cosmopolitan outlook for the organization in composition while returning the organization to its core mission of handling BOP crises.

As for DSK, some people just want to party all the time. DSK is a socialist in the way Super Mario is a communist, and his hankering for the good life looks to have terminally ended his future political prospects. But hey, loving the limelight, he can always become an Eliot Spitzer-esque talking head.

You call that austerity?

We imagine that will be the response by many in Athens and Dublin to the conditions which have been announced along with the €78bn bailout deal for Portugal. Jose Socrates, the caretaker Portuguese PM, was almost boasting on TV last night about how much more favourable the terms were for Portugal compared to Greece and Ireland. In the cold light of day though, most of the details we’ve seen so far focus on what won’t happen rather than what will, raising the question: Where are the necessary savings actually going to come from? That should be slightly concerning for taxpayers across the EU.

The point that has attracted most attention is the easing of the deficit cutting programme. But in actual fact the targeted cut is higher than before, given the change in the level of the deficit.

Previous 2010 estimate and 2011 target: 7.3% and 4.6% = change of 2.7%

New 2010 estimate and 2011 target: 9.1% and 5.9% = change of 3.2%

Most observers, including us, didn’t expect Portugal to be able to achieve its original level of cuts, let alone a higher level - especially when combined with lower growth prospects. That was before we even found out what was not going to be cut…

According to Socrates the conditions will not include cuts to: minimum wages, public sector pay, education spending and healthcare. In addition, there will be no additional public sector job cuts and the retirement age will not be increased. That is a huge list of things that will be left untouched, especially since savings of 3.2% of GDP are expected.

So, seriously, where is the money coming from?

Well, there are expected to be some, limited, cuts to higher scale state pensions as well as a decrease in the amount and duration of unemployment benefit. There is also a plan to raise VAT on electricity. In terms of increasing revenue, there was talk of privatising €5.3bn in public assets but not Caixa Geral de Depositos, the largest credit institution, which was widely expected to be sold to raise funds. So all in all not exactly an earth-shattering plan for saving 3.2% of GDP.

To be fair, there are more details and plans to be announced but considering what has already been taken off the table we’re not overly optimistic.

Admittedly, too much austerity would definitely be bad for the economy and finding the right balance is a hard line to tread. But for those of us who already believe the bailouts to be a waste of money, since they won’t solve any of the long term problems, these kinds of conditions are almost just adding insult to injury.

David Cameron Blocks Gordon Brown as Head of IMF
THE DAILY TELEGRAPH: David Cameron will block Gordon Brown's attempts to head up the International Monetary Fund after criticising his handling of the financial crisis.

In a direct attack on the former Prime Minister, Mr Cameron said his predecessor was not the "most appropriate person" to lead the IMF because he would not admit the UK had a "debt problem".

Mr Brown is reportedly hoping to take on the £270,000-a-year role but he must first be nominated by the Government.

“If you have someone who didn’t think we had a debt problem (running the IMF) they may not be the best person to decide whether other countries have that problem," he said on BBC Radio 4's Today programme.

He added that the role needed to be filled by “someone who understands the dangers of excessive spending.”

And in a clear signal that Britain would block Mr Brown if stood for the job, Mr Cameron suggested the position should be filled by a candidate from “China, India or south east Asia.” » | Andrew Porter and James Kirkup | Tuesday, April 19, 2011

Performance problems

The problems facing German banks (and banks as a whole) have been slightly under reported in recent months. This week, though, has seen a spate of reports which pick up on just that issue.

The IMF Global Financial Stability Report pinpointed the Irish and German banks as the ones with the most "acute" need to rollover debt. Both banking sectors have about half of their outstanding debt due in the next couple of years. So expect a refinancing rush in the not too distant future (although the more immediate concern for most German banks is whether they can raise enough capital to make sure they pass the next round of stress tests).

Interestingly (and commendably), the IMF takes a much higher threshold for capital requirements than the EBA (8% compared to 5%). According to the report, a third of all European banks don't meet the IMF core capital requirements. This highlights just how lax the EBA is being in its assessments, and how precarious the position of many banks is.

According to PWC, German banks are holding €225bn in "non performing loans" - these are loans which are unlikely to be repaid (to compare: UK banks hold €175bn. Irish and Spanish banks hold €110bn and €100bn respectively). The sheer volume of risky loans held by German banks is surprising, especially considering that they hold more than the UK banking sector which is far larger. These figures are only going to increase as well, thanks to poor economic growth and the looming ECB rate rises. Once these losses start being realised they could pose a serious problem for the smaller German banks, who already have capitalisation issues.

(Yesterday it emerged that the German state of Lower Saxony will pump a further €600m of capital into regional bank NordLB, in which it holds the biggest share, aiming to help it pass EU stress tests. We're sure the Lower Saxony taxpayers are thrilled with that!)

On the surface this may seem like it detracts from the problems of the periphery and could even reduce the 'piousness' which many have accused Germany of. However, this is probably far from the truth. Unfortunately, these banking problems are systemic and not enough is being done to tackle them (or even root out their full extent).

So what needs to be done?

Well, (not that we like harping on about it) effective and transparent stress tests would be a good place to start. Combining some peripheral debt restructuring with a widespread recapitalisation programme for European banks should be the ultimate goal. This might be a painful process but it would finally deal with the issues that have been hanging around since the start of the financial crisis. There also needs to be a plan for winding down insolvent and inefficient banks (to be fair there is a 2001 directive which outlines one, but it needs updating and some political will to enforce it).

European leaders continue to turn a blind eye to the dire state of European banks and in this instance Germany is as, if not more, guilty. The level of non-performing loans, huge exposure to peripheral economies and large amounts of debt maturing highlight the trifecta of problems which European banks face; shouldn't EU leaders at least try and deal with one of them?

IMF Warns US to Make a 'Down Payment' on Deficit
THE DAILY TELEGRAPH: The US should make a 'down payment' this year on tackling its budget deficit, the International Monetary Fund has warned, as it emerged that the world's biggest bond investor is shorting the country's bonds.

America will rack up a budget deficit of 10.8pc of gross domestic product this year, the largest of any of the developed economies, the IMF said in its latest Fiscal Monitor report.

In sharp contrast to Britain and much of the rest of Europe, the US has so far delayed any move to cut its budget deficit. Instead, through a combination of extending tax cuts and a second, $600bn round of quantitative easing, Congress and The White House have focused efforts on trying to quicken a recovery that failed to take off last year. » | Richard Blackden, US Business Editor | Wednesday, April 13, 2011

Will Greece lightening strike twice?

Today saw a drop in the borrowing costs for Ireland, Spain, Portugal and even Greece, as markets apparently took heart in rumours that EU leaders will soon strengthen the main bail-out fund, the EFSF, to back up eurozone countries in trouble

News of more stability in the markets are welcome, the reason underpinning them (EU leaders consider putting even more taxpayers' cash on the line to save countries that mismanaged their finances) are not - a contradictory feeling that those of us who saw this coming will have to deal with.

But notwithstanding positive developments of late, there has been something very familair about the last couple of weeks - as Greece is again coming back into the spotlight. We hear increasing worries about Greek debt levels and leaked rumours over a possible restructuring combined with a bailout.

It may not be as much hype, but looking at the numbers, in fact, it's feeling alot like last Spring.

Leaked reports claim that EU leaders are now considering a restructuring plan for Greece's debt, which would see the country buying back some of its own debt at a cheap price, using some €50 billion from the EU's bail-out fund, in combination with a lengthening of the pay-back period of the EU loans Greece has already recieved.

As we argue in our latest briefing, Greece will find it almost impossible to make it through the next two years without some sort of additional help or restructuring. Just consider the facts and figures:

• Greece's debt to GDP ratio is set to reach 152% this year, equal to €341 billion
• It will have to find at least a total of €53.35 billion to plug its huge funding gap (this includes debt maturing, interest payments and money needed to plug the budget deficit - and this figure is likely to prove an underestimate)
• Disbursement of EU/IMF bail-out funds this year will only amount to €46.5 billion, leaving Greece €6.85 billion short
• Greece's cost of borrowing is still around 11% for long term debt, meaning that it cannot go to the market to raise the extra cash (as that would be wholly unaffordable).
  

EU leaders are therefore right to consider ways to restructure Greek debt. However, as we also argue in the briefing, the proposal contemplated isn't in itself much of an answer. As the table below shows, even if Greece were to make it through this year, or even 2012, it would continue to face daunting re-financing targets, which, again, aren't matched by available bail-out cash.

So even if the rumoured restructuring plan were implemented we estimate that Greece’s debt to GDP ratio would still top 145% in 2011, though if private bondholders agreed to take part in the plan (which is far from certain), this could be slashed considerably more. For Greece to get back on the path towards sustainability its debt to GDP ratio needs to be below 100%. This, in turn, would require a write off of more than one-third of all Greek debt. A substantial jump from the 2.4%-4.2% expected with the current plan (without private bondholders included).

There is also no indication as to how Greece would deal with the €148 billion of debt maturing by 2014, nor the interest payments on its debt, which accounted for a whopping 20% of all government expenditure last year.

The scheme proposed by the eurozone leaders also fails to address some other familair problems. Greece has a massively overvalued currency, poor growth prospects and little international competitiveness. Until these issues are properly dealt with, Greece’s long term prospects look bleak.

The markets may be looking up right now - which is good news - but for Greece, alas, little has actually changed, despite some considerable austerity efforts. Even with a mild restructuring/another bailout, the Greek debt crisis is likely to rear its head again.

Maybe a third lightening strike will force eurozone leaders to try something different.

Irland bittet IWF und EU um Milliardenhilfe
WELT ONLINE: Jetzt also doch: Irland wird unter den Euro-Rettungsschirm schlüpfen. Das hochverschuldete Land braucht "mehrere zehn Milliarden Euro".

Die hohen Staatsschulden der Iren bedrohen die Stabilität der Euro-Zone. Bild: Welt Online
Irland wird als erstes Land offiziell um Finanzhilfe aus Mitteln des Rettungsschirms der Euroländer und des Internationalen Währungsfonds bitten. Finanzminister Brian Lenihan sagte am Sonntag im irischen Sender RTE, es gehe um „mehrere zehn Milliarden Euro“, nannte jedoch keine konkrete Summe. Griechenland hatte im Mai 110 Milliarden Euro erhalten, allerdings gab es damals den 750 Milliarden Euro umfassenden Rettungsschirm noch nicht. Er werde einen entsprechenden Vorschlag noch am Sonntag im Kabinett machen, sagte Lenihan. >>> dpa/cat | Sonntag, 21. November 2010

FRANKFURTER ALLGEMEINE ZEITUNG: Irland bittet um Hilfe: „Mehrere zehn Milliarden Euro“ >>> bes./wmu. , F.A.Z. | Sonntag, 21. November 2010

THE NEW YORK TIMES: Ireland Asks for Aid From Europe, Minister Says: DUBLIN — Ireland has formally applied for a bailout from the European Union and the International Monetary Fund, Brian Lenihan, the country’s finance minister, said Sunday. >>> Landon Thomas Jr. | Sunday, November 21, 2010

The Hunt for Jobs Sends the Irish Abroad, Again
THE NEW YORK TIMES: DUBLIN — Antoinette Shields had a plan to keep her tall, blue-eyed son, Kevin, close at hand. When she took over her boss’s construction company in 2002, she hoped to retire at 55 and give her son the business.

But it is not working out that way. Mrs. Shields’s company, which once employed 26 people, is now down to 8, still afloat in Ireland’s collapsed economy, but barely. Though Kevin graduated from college two weeks ago, she has no work for him, and he expects to emigrate to the United States or Canada next year.

“That is where we are,” Mrs. Shields said. “Sad, isn’t it?”

Just three years ago as Ireland’s economy boomed, immigrants poured in so fast that experts said this tiny country of 4.5 million was on its way to reaching population levels not seen since before the great potato famine of the mid-19th century. The conditions that prompted the Irish statesman Éamon de Valera to express the hope that Ireland’s children would no longer “like our cattle, be brought up for export” seemed like quaint history.

That has abruptly turned around. >>> Suzanne Daley | Saturday, November 20, 2010

THE TIMES: Ireland goes cap in hand to IMF >>> Sadie Gray | Sunday, November 21, 2010 | (Behind a paywall: £)

THE SUNDAY TIMES: Who killed the Celtic tiger? >>> James Ashton and Iain Dey | Sunday, November 21, 2010 | (Behind a paywall: £)

THE SUNDAY TIMES: Death of the euro >>> David Smith and Richard Woods | Sunday, November 21, 2010 | (Behind a paywall: £)

UK Austerity Drive Threatens to Snuff Out Recovery, IMF Warns
THE TELEGRAPH: Britain's fledgling recovery may be nipped in the bud by the savage cuts planned to grapple with the mountain of public debt, the International Monetary Fund has warned.

Official figures on Thursay provided the first clear evidence of positive momentum in the economy, but forecasters warned of "headwinds" from planned tax rises and spending cuts to shrink Britain's £155bn budget deficit, and the IMF on Thursday slashed its growth forecasts for the UK.

Manufacturing posted its fastest annual growth in more than 15 years, according to the Office for National Statistics, while economic output in the three months to June was the strongest it has been since the recession struck, the latest monthly estimates from the National Institute of Economic and Social Research (NIESR) showed.

However, NIESR warned of "headwinds [as] fiscal consolidation both in the UK and the euro area restrict growth". "There is clearly a risk that this rate of growth will not be maintained through the rest of this year," the economic forecaster said. >>> Philip Aldrick and Angela Monaghan | Friday, July 09, 2010