The global financial crisis is a “trial by fire” that Europe must, like the US, respond to, the head of the International Monetary Fund said today.
Dominique Strauss-Kahn’s call to arms came just hours before the leaders of Europe’s four largest economies were to discuss ways in which to co-ordinate their response, at a summit in Paris.
The IMF head described the crisis as an unprecedented test for the euro. He also said that because of the financial turmoil, his organisation planned to “quite significantly” lower its growth forecasts, without specifying which forecasts or when they would be revised and by how much.
Speaking just hours after the US Congress passed an historic US$700bn (€504.8bn) bailout for the financial industry, Strauss-Kahn said: “We have to make sure Europe takes its responsibilities like the US took its.”
“We have to act quickly and we have act together,” he said, speaking to reporters outside the presidential Elysee Palace, in Paris, where the European leaders will meet.
The turmoil that devastated Wall Street has spilled over to Europe, where governments have also acted to shore up shaky banks but have not formulated a co-ordinated across-the-board response.
Strauss-Kahn described the situation as a big test for the 15 countries that share the euro currency.
“We haven’t faced, on the part of the euro, a trial by fire. This is the trial by fire. Europe, and in particular the eurozone, has to show that it can respond in a crisis,” said Strauss-Kahn, who was France’s finance minister when the currency was launched on Jan 1, 1999.
The IMF managing director met for close to an hour with President Nicolas Sarkozy on Saturday afternoon, before the French leader hosted his counterparts from Germany, Britain and Italy for the summit to try to resolve their differences on how to respond.
Strauss-Kahn said he hoped the leaders would send a message “of working together, collective action, which is needed even more in Europe than the US, because Europe is a more complex construction”.
More broadly, the former leading light in France’s opposition Socialist Party said that considering the crisis, “we have to take another look at the functioning and architecture of the global financial system”.