Lagarde Says Europe Faces ‘Defining Moment’ as Economy Wobbles

(Bloomberg) -- European Union leaders need to redouble their efforts to lift living standards across the continent as populist movements question the merits of integration, International Monetary Fund Managing Director Christine Lagarde said.

More than a quarter century after it was founded, the EU has largely delivered on its promise of peace and broadly shared prosperity, Lagarde said Thursday in the prepared remarks of a speech to be delivered in Munich.

Still, poorer southern countries in the economic union haven’t caught up to their richer northern peers, a gap that has worsened since the global financial crisis, she said. Between 2008 and 2017, average annual growth in real income per person was negative in the five southern members of the euro zone hit hardest by the crisis, she noted.

“Europe is once again facing a defining moment,” said Lagarde. “Our goal should be clear: Restarting convergence and ensuring the fruits of economic growth are shared broadly across the EU. This will help restore faith in the European project.”

She urged EU countries to reform their labor markets so firms have more flexibility in hiring and firing workers, make their business climate more welcoming to investment and increase spending on research and development.

Lagarde’s remarks come amid a turbulent debate over Britain’s exit from the EU, as well as signs of sputtering growth in the world’s biggest economic bloc. The IMF partly blamed softening demand across Europe in cutting its 2019 forecast for global growth for the second time in three months.

Among major economies, the deepest revision was for Germany, which the IMF now sees expanding 1.3 percent this year, down 0.6 percentage point from the fund’s forecast in October. The IMF also cut its outlook for Italy and France.

British Prime Minister Theresa May suffered another embarrassing defeat on Thursday as parliament voted against her mission to rewrite the government’s Brexit deal. The loss throws more uncertainty on Britain’s plan to leave the EU on March 29.

Lagarde, a former French finance minister, is viewed by some as a possible successor to European Commission President Jean-Claude Juncker, whose five year term ends in October.

To contact the reporter on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor, Randall Woods

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