IMF: Global economy needs collective action now

IMF chief Christine Lagarde has called for countries to "act now and act together" to keep on the path to economic recovery.

"We are by no means strangers, and we are linked by a common destiny," she said at the annual meeting of the IMF and the World Bank in Washington.

"And these turbulent times must bind us ever closer together."

Ms Lagarde was speaking after another week of volatility on the world's share markets.

In Europe, the main share indexes in London, Paris and Frankfurt all fell about 4% over the week.

Meanwhile, UK Chancellor George Osborne warned time was running out to tackle the eurozone debt crisis.

Speaking in Washington, where the G20 is also gathering, Mr Osborne said European leaders had six weeks to end the crisis.

'Dark clouds'

Ms Lagarde said: "There is a path to recovery. It's narrower than it was three years ago but there is a path and we have options."

But she added: "There are dark clouds over Europe and there is huge uncertainty in the US. And with that we could risk a collapse in global demand.

"Well, so what? Let's remove the clouds and remove the uncertainty. Easier said than done, and it requires clearly a collective action.

"We are all in it together and nobody should be under any illusion that there could be a de-coupling."

Global shares had slumped on Thursday, sparked by a Federal Reserve warning late the previous day about the outlook for the US economy.

And on Friday, Greece denied media reports it was contemplating defaulting on its debts, with creditors taking a 50% hit on Greek government bonds.

Finance Minister Evangelos Venizelos said Athens was focusing on reducing its debt levels.

"All other discussions, rumours, comments and scenarios which are diverting our attention from this central target and Greece's political obligation... do not help our common European task," he said.

Also on Friday, credit rating agency Moody's downgraded eight Greek banks due to concerns about Greece's ability to pay back its debts.

Two of the Greek banks downgraded, the Emporiki Bank of Greece and General Bank of Greece, are majority-owned by France's Credit Agricole and Societe Generale respectively.

Unimpressed

Thursday's market falls had sparked the G20 to announce a commitment "to take all necessary actions to preserve the stability of banking systems and financial markets as required".

It said it would follow up this pledge with a "bold action plan" at the beginning of November.

Analysts said investors were unimpressed by the announcement.

"The statement from the G20 last night may have taken the edge off the current bitter market sentiment, but the reassurances from the finance ministers lack substance," said Jane Foley at Rabobank.

"Until politicians back their actions with words in respect to moving closer to a solution to the eurozone debt crisis, markets will continue to worry about a messy and painful outcome from the eurozone debt crisis."

The G20 has given little hint of what action it may take, but markets have long been calling for a substantial increase in the eurozone's communal bailout fund, the European Financial Stability Facility (EFSF), from its agreed level of 440bn euros ($596bn; £385bn).

Many investors also want the eurozone to issue bonds guaranteed by every one of the 17-member nations - so-called eurobonds. However, a number of policymakers, particularly those in Germany, have resisted the idea.

In July, European finance ministers proposed making the EFSF more flexible, allowing it to buy individual government bonds - which would bring down the cost of borrowing for heavily indebted nations - and to offer emergency credit lines to banks. However, the proposals have not yet been ratified.

Sense of urgency

Analysts say far swifter action is needed in order to soothe investors' jittery nerves.

"Markets work on a second-by-second basis, while politicians seem to be working to a monthly calendar," Jeremy Stretch from CIBC told the BBC.

UK Chancellor George Osborne also said that time was of the essence.

"There is a far greater sense of urgency than there was three weeks ago about the necessity for the eurozone to address its problems and there is pressure on the eurozone from across the international community," he told the BBC.

He said there was a recognition that a solution needed to be found in weeks not months, and a comprehensive solution needed to come from the G20 leaders' meeting in November.

The BBC's economics editor, Stephanie Flanders, said the chancellor was echoing comments from people outside the eurozone, who think the Europeans missed an important opportunity to resolve the situation over the summer.

They had the summit in July then the perception was that they all went on holiday, leaving question marks over the markets which has now cost them dearly, she said.

The Labour leader, Ed Miliband, has called for the November G20 meeting to be brought forward so that leaders can agree a plan for growth.

Jim O'Neill, chairman of Goldman Sachs Asset Management, suggested this weekend's meeting in Washington could mark the beginning of concerted action to tackle the debt crisis in Europe which is the cause of so much stock market volatility.

"The thing that really brought the world to a better place in 2008 was genuine collective action involving both the developed and the developing world through the G20," he told the BBC.

"The fact that they're all there together in [Washington] DC this weekend should lay the framework for thoughts about quite significant actions... sometime between now or possibly at the November G20 in France."