STARK DIVISIONS are emerging among economic policymakers about how quickly governments and central banks should withdraw emergency support measures, with Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), warning yesterday about the risks of early exit.
In a speech in London, Mr Strauss-Kahn said the global economy stood at the cusp of recovery but remained vulnerable to shocks and policy missteps. Economic stimulus programmes should not be stopped too soon.
He stressed to UK business leaders the importance of waiting for a sustained recovery in demand, as well as clear indications of financial stability, before accommodative measures were withdrawn. “It is too early for a general exit. We recommend erring on the side of caution, as exiting too early is costlier than exiting too late,” he said.
Mr Strauss-Kahn’s stance contrasted with warnings from the European Central Bank (ECB) that delays in unwinding exceptional measures taken to combat the economic crisis could backfire.
On Friday, Lorenzo Bini Smaghi, an ECB executive board member, said history showed the late implementation of “exit strategies” could cause future crises.
Speaking in Madrid yesterday, ECB president Jean-Claude Trichet said the threats to public finances posed by stimulus packages meant “an increasingly pressing need for ambitious and realistic fiscal exit strategies and for fiscal consolidation”.
He said it was “still premature to declare the financial crisis over. But when the appropriate time comes, there should be no concern about the ECB’s determination and ability to exit.” – (Copyright The Financial Times Limited 2009)
