Bloomberg News

IIF’s Dallara Says Europe Needs to Boost Short-Term Growth

February 24, 2012

(Adds Dallara’s comments on IMF, financial regulation starting in fifth paragraph. For more debt-crisis news, see EXT4. For G-20 news, see GMEET.)

Feb. 24 (Bloomberg) -- The Institute of International Finance urged European policy makers to support the region’s short-term growth, which is being threatened by their efforts to decrease debt levels.

While policy makers in the 17-country euro area have made progress addressing their debt crisis, the austerity measures under way will at first depress growth that’s already “subpar,” IIF Managing Director Charles Dallara wrote in a letter to Mexican Finance Minister Jose Antonio Meade, who will chair a meeting of Group of 20 finance ministers and central bank governors this weekend.

“Mitigating the impact of fiscal austerity is key: countries that have fiscal space to allow adjustment to be more gradual should take advantage of it,” wrote Dallara, whose organization represents more than 450 financial firms.

G-20 finance ministers and central bank governors are meeting in Mexico City four days after euro-area governments sanctioned a 130 billion-euro ($175 billion) aid package for Greece and amid warnings by the International Monetary Fund that concerns about debt sustainability could drag the world into another recession. The IMF forecasts that the economy of the euro region will contract 0.5 percent this year.

“World growth is expected to slow this year, Europe is in recession and the sovereign debt crisis, despite recent positive developments--most notably agreement on Greece’s adjustment program and voluntary debt restructuring--remains largely unresolved,” said Dallara, who negotiated the Greek debt swap on behalf of private bondholders.

“With many countries facing fiscal constraints amidst ongoing risks to growth and financial stability, there is a strong case to be made for further enhancement of the IMF’s resources,” he added.

The IIF’s recommendations to the G-20 also include a call for a “more balanced regulatory environment,” arguing that constraints on lenders can weigh on credit growth.

The Washington-based organization said the proposed Volcker Rule, which would ban banks from proprietary trading, should be revised. International governments, including Japan, Canada and the European Union, have sent letters to the Treasury Department and U.S. regulators warning about the rule’s extraterritorial reach and its affect on global liquidity.

’’Proposed U.S. regulations to implement the Volcker rule need revision even within the constraints of the Dodd-Frank Act- -they would have a broadly negative impact on global financial- market liquidity,’’ Dallara wrote. He urged the G-20 to signal the need to avoid regulatory fragmentation.

Today, U.S. Treasury Secretary Timothy F. Geithner said in an interview that he is confident that regulators will be able to complete the Volcker Rule while allowing exemptions for market-making as the law intended.

Dallara also asked for a delay in the capital surcharge for the global systemic banks until January 2018 in light of ’’significant difficulties in raising capital.’’

--Editor: Joshua Goodman

To contact the reporters on this story: Sandrine Rastello in Mexico City at srastello@bloomberg.net; Cheyenne Hopkins in Mexico City at chopkins19@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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