Crisis of confidence

Germany should put the breaks on austerity and implement a new stimulus program if its exported-orientated economy continues to demonstrate slow growth, according to Christine Lagarde, head of the International Monetary Fund (IMF).

"If exports - which are the basis of Germany's economic model - decline, then the German government could introduce counter measures," Lagarde said in an interview with the weekly news magazine, Der Spiegel.

German economic growth largely came to halt in the second quarter of 2011 due to a decline in consumption. If Berlin stimulated domestic demand, it would be good both for both Germany and its neighbors, Lagarde said.

Crisis of confidence

The IMF has concluded that the global economy is suffering from a crisis of confidence which reached its high point with the US credit rating downgrade in July and now threatens to trigger a new recession.

"Therefore new measures have to be seized to prevent a downward spiral," Lagarde said.

The IMF chief went on to say that European banks need to increase their capitalization in order to weather the risks associated with the sovereign debt crisis and weakening economic growth.

Lagarde's comments came after World Bank chief Robert Zoellick warned on Saturday during a conference in Beijing that the global economy could "slide into a new danger zone this fall."

Although Lagarde said that governments and central banks have fewer policy options than they did in 2009, she still believes that a recession can be avoided if the international community works together.

"We have to break this vicious circle," she said.

Author: Spencer Kimball (dpa, Reuters, dapd)
Editor: Andreas Illmer