Stark divisions are emerging among economic policymakers about how quickly governments and central banks should withdraw emergency support measures, with Dominique Strauss-Kahn, the managing director of International Monetary Fund, 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 highly vulnerable to shocks and policy mis-steps. Economic stimulus programmes should not be stopped too soon.
Mr Strauss-Kahn stressed 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a sustained recovery in demand, as well as clear indications of financial stability, before accommodative measures were withdrawn.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 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 that the late implementation of “exit strategies” could cause future crises.
欧央行执委会委员洛伦佐•比尼•斯马吉(Lorenzo Bini Smaghi)上周五表示，历史表明，过迟实施“退出战略”，可能导致未来的危机。
“In my view, the ‘err on the side of being late' paradigm is potentially as dangerous as the ‘productivity growth' paradigm of the late 1990s and the ‘fear of deflation' paradigm of the early 2000s, which led some advanced economies to implement policy stimuli for too long, sowing the seeds of the subsequent crisis,” Mr Bini Smaghi said in Paris.
Speaking in Madrid yesterday, Jean-Claude Trichet, ECB president, said the threats to public finances posed by stimulus packages meant there was “an increasingly pressing need for ambitious and realistic fiscal exit strategies and for fiscal consolidation”.
Mr Trichet 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.” ECB measures to provide extra liquidity to eurozone banks would be phased out in a “timely and gradual” fashion “to counter effectively any threat to price stability over the medium to longer term”.
Mr. Strauss-Kahn said the old paradigm of growth based on US household demand was dead and the surplus countries needed to step into the breach. “China and other emerging Asian economies are shifting from exports to domestic demand. But they have some way to go.”