Skip to main content

Lagarde vs. Rehn: Needed debate, or dangerous split?

By Andrew Stevens, CNN
updated 3:36 AM EDT, Fri October 12, 2012
International Monetary Fund Managing Director Christine Lagarde and EU Commissioner Olli Rehn before an Eurozone Council meeting in June.
International Monetary Fund Managing Director Christine Lagarde and EU Commissioner Olli Rehn before an Eurozone Council meeting in June.
STORY HIGHLIGHTS
  • Divisions are appearing among key players responsible for the eurozone's austerity program
  • International Monetary Fund and the European Commission at odds over best way forward
  • IMF wants to give Greece more time after a new study suggest austerity is hurting growth
  • Rehn: "The findings can be disputed and I am looking forward to extensive negotiations"

Editor's note: In this analysis piece, World Business Today anchor Andrew Stevens examines the split appearing among two powerful factions in the eurozone debt crisis on the sidelines of the International Monetary Fund meetings in Tokyo.

Tokyo (CNN) -- Big divisions are appearing among the key players responsible for the eurozone's tough austerity program.

The International Monetary Fund and the European Commission are at odds over which is the best way forward.

As millions of Europeans feel the biting impact of austerity measures, IMF boss Christine Lagarde says it's time to hit the brakes.

German Finance Minister Wolfgang Schäuble says changing directions now would lead to a critical loss of confidence in the whole plan.

IMF chief: Austerity is hurting growth
IMF chief: U.S. fiscal cliff a concern
World Bank goal: 'Bend arc' on poverty
IMF economist on global risks
Chinese official leaves IMF meeting

And European Commission Vice President Olli Rehn says the IMF's findings "can be disputed."

It started on Monday when the IMF said that specific debt reduction targets, which underpin most of the austerity programs in place across recession-ravaged Europe, have a much deeper impact that expected.

New IMF research says that pruning a budget deficit by one percentage point could mean a cut in economic growth of between 0.9% and 1.7%. That is up to three times more severe than the current economic models suggest.

In other words, debt reduction is having a much more severe affect on growth than first thought.

It's led Lagarde to say that the austerity programs should not focus on specific targets and that countries should be given more time to cut their debt.

Schäuble shot back the next day. He told the Financial Times "when there is a certain medium-term goal it doesn't build confidence when one starts going in a different direction."

"When you want to climb a big mountain and you start climbing back down the mountain, then the mountain will get even higher," he said.

Next to weigh in was Olli Rehn. He told me today that he was not yet buying the IMF argument.

"The findings can be disputed and I am looking forward to extensive negotiations on this," he said.

"Even the IMF can be open to criticism -- it does not have the final word."

So, a needed debate or a dangerous split? Rehn, ever the diplomat, says he sees this as a sign of "healthy policy debate over the right course of action."

But he does support the German view. "He (Schäuble) has a point. The EU cannot be making swift turns, rather it is a convoy and you have to carefully consider which policy turns are best."

The EU will produce its own conclusions about the impact of austerity measures next month. Whether that brings us any closer to a consensus is hard to judge.

Remember the old joke about economists: if you laid all the economists in the world end-to-end you still wouldn't reach a conclusion.

But this is no joking matter. Millions of Europeans have fallen into poverty or at least economic hardship as a result of the current austerity programs.

Getting the right mix of policies to deal with the crisis not an option, it's an imperative.

ADVERTISEMENT
Part of complete coverage on
updated 3:43 PM EDT, Tue August 27, 2013
German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
updated 11:28 AM EDT, Wed September 4, 2013
The G20 is held in Russia but, amid disagreements over Syria, can anything be done? John Defterios investigates.
updated 11:02 AM EDT, Wed July 10, 2013
Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
updated 1:50 PM EDT, Fri June 7, 2013
The euro club has suffered major shockwaves but its newest member has emerged as an economic star. What;s behind Estonia's success?
updated 9:23 AM EDT, Wed May 29, 2013
The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
updated 9:26 AM EDT, Tue May 14, 2013
The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.
The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
updated 10:56 PM EDT, Sun May 26, 2013
Europe's competitiveness is threatened as manufacturing companies scrambling to find enough skilled engineers.
updated 11:02 AM EDT, Wed July 10, 2013
Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
updated 6:44 AM EDT, Thu May 2, 2013
As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
updated 8:10 AM EDT, Fri April 26, 2013
As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
updated 12:56 PM EDT, Thu April 25, 2013
Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
updated 9:55 AM EDT, Mon March 25, 2013
The financial uncertainty in Cyprus is generating images of long lines at ATM machines and anti-European Union protests.
updated 2:15 PM EDT, Mon March 25, 2013
Cyprus will "step up efforts in areas of fiscal consolidation." Where have we heard that before? Oh yes. Greece.
updated 9:39 PM EDT, Fri March 22, 2013
The Cyprus debt crisis is being felt by the banks but also by the people who work at them. Nick Paton Walsh reports.
updated 8:10 PM EDT, Thu March 21, 2013
CNN's Nick Paton Walsh reports on a Russian hotel maid caught up in Cyprus' financial crisis.
updated 12:08 PM EDT, Mon March 18, 2013
Never underestimate the capacity of the Eurozone to shoot itself in both feet, says CNN's Richard Quest.
updated 11:03 AM EST, Thu February 21, 2013
Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.
ADVERTISEMENT