Lagarde calls for joint action on crisis

EUROPE FACES greater social unrest unless co-ordinated measures are quickly taken to solve the global economic crisis and to stop countries resorting to protectionism, France’s finance minister has warned.

Speaking at the Davos economic forum on Saturday, Christine Lagarde said that government leaders needed to send a clear signal to ordinary people about how governments intended to act.

“We’re facing two major risks: one is social unrest and the second is protectionism,” she said. “We need to restore confidence in the systems and confidence at large.”

Her comments came as protests were held in Davos and Geneva against the World Economic Forum’s annual meeting in the Swiss Alpine town. At a small protest in Davos, demonstrators held up a banner reading, “You are the crisis”, and threw snowballs at security guards. Sixty were arrested in Geneva.

Asked by The Irish Timeswhether countries would take radical, individual measures, similar to Ireland's bank guarantee in September, without an international solution, Ms Lagarde said: "It is going to be different from one country to the other simply because the banks are not exactly in the same situation."

She said that co-ordinated action needs to be taken at the London meeting of the G20 group on April 2nd.

Speaking in Davos on Saturday, British prime minister Gordon Brown said that banks were reducing lending in their overseas operations and retreating to their home businesses.

Asked about fears of nationalising Royal Bank of Scotland, owner of Ulster Bank, and how it could be reversed later, Mr Brown said: “This is not about whether you nationalise a bank or what the share structure of a bank is. This is about the resumption of lending.”

Speakers in Davos warned of fears of financial protectionism as banks focus on domestic lending and governments struggle to contain the economic aftershocks of the financial meltdown.

Bank of Ireland recently announced a dramatic reduction in its UK lending as it cuts borrowing in the international money markets while continuing to grow lending in Ireland.

Concerns were expressed that measures taken to reflate domestic economies, such public lending programmes that favour local borrowers, could contribute to a contraction in world trade.

“We see more and more signs that these protectionist measures . . . fall within some sort of ideology of economic nationalism,” said Celso Amorim, Brazil’s foreign minister. “This could bring us back to the 1930s again.”

Pascal Lamy, director general of the World Trade Organisation, said that the conclusion of the stalled Doha round of talks on a world trade agreement by the G20 countries would send “the right signal of confidence”.

Irish businessman Peter Sutherland, a former head of the trade body who was in Davos, criticised former US president Bill Clinton for casting doubts on any possible trade deal because of the crisis. “It wasn’t helpful to hear Bill Clinton saying trade agreements should be put to one side for the moment.”