(Bloomberg) -- International Monetary Fund head Christine Lagarde called on Germany and France to spur further euro-area integration, saying Brexit makes a capital-markets union on the continent more urgent.
“If these two countries can set their minds to reforming the euro area, if they carry with them some of the other players, including the Netherlands, including Italy whenever that government is formed, then there would be real hope to move forward,” Lagarde said in a Bloomberg Television interview on Monday.
Lagarde laid out her vision of a strengthened European currency union during a visit to Berlin, portraying a successful euro area as an antidote to populism and protectionism. Efforts to reduce barriers to capital flows are most advanced and governments are “almost there” on a backstop for the bank resolution, the IMF managing director said.
To prepare for the next crisis that she said will inevitably come, Lagarde proposed setting up a “rainy-day fund” in the euro area to bolster its defenses against shocks. With Germany’s new coalition in place and the regional economy booming, she called on governments to agree on a package including all three policy areas by the end of 2018.
Window of Opportunity
“There’s a window of opportunity from now until June, when they have agreed to actually deliver some proposals,” she said in the interview. “I would say that until the end of the year is really the window of opportunity when they can give signals, set objectives and agree on the principles.”
Britain’s departure from the European Union adds urgency, Lagarde said.
“Whatever the transition period, whatever the terms afterwards, some of the financing activity is going to move to the continent,” she said. “It’s important that the euro area be a joint, properly operated capital-market union.”
Germany’s response to its excessive current-account surplus is “a little bit too gradual” and it’s time to rebalance, Lagarde said. She welcomed what she described as a growing realization among German policy makers that spurring investment is a good thing.
Lagarde has had some pointed words this year for Germany over the nation’s trade surplus.
In January, the IMF chief encouraged Chancellor Angela Merkel’s government to step up public spending to lift growth, saying that Germany’s current-account surplus is too large. The U.S. trade deficit with various nations has been a source of consternation for Trump since his election in 2016.
In a speech in Berlin earlier Monday, Lagarde urged Europe to pursue further integration, including by setting up a “central fiscal capacity” that would establish a “rainy-day fund” that members finance through annual contributions.
“A more unified euro area can be a compass to prosperity for the region and a beacon of hope to the world,” Lagarde said.
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