IMF turns up heat on U.S., eurozone

TOKYO - The head of the International Monetary Fund on Thursday called for urgent action to tackle Europe's debt problems and an approaching fiscal crisis in the United States, warning that the struggling world economy is already falling short of even pessimistic expectations.

IMF chief Christine Lagarde, speaking to reporters as the IMF and World Bank held annual meetings in Tokyo, praised recent steps taken by the European Central Bank and European governments, but said "more needs to happen, and faster."

In Greece, which is expected to enter a sixth year of recession next year, official figures showed Thursday that unemployment hit a record high of 25.1 percent in July, up from 24.8 percent in June. All indications are that unemployment in Greece will continue to rise.

In Tokyo, finance ministers and central bankers from the Group of Seven richest nations met for about 90 minutes on the sidelines to discuss the European debt crisis. They also discussed the impending U.S. budget impasse, an issue that prompted some at the meeting to express concern, according to a senior Japanese Ministry of Finance official who briefed reporters on condition of anonymity, which is ministry policy. They released no communique.

U.S. Treasury Secretary Timothy Geithner was upbeat about recent moves in Europe to stabilize and reform crisis-stricken economies.

"The basic thrust of the strategy is right and good," he told a conference on the sidelines of the IMF and World Bank meetings. "They're already having traction in improving competitiveness."

Geithner also sought to strike a reassuring tone regarding the threat of the so-called fiscal cliff of tax increases and deep spending cuts that will take effect in 2013 unless Congress and the Obama administration resolve a budget impasse.

The Obama administration intends to try to fix the problem before the end of the year, Geithner said. "We're going to take a run at it."

The IMF has urged U.S. officials to raise the ceiling on the level of debt the government can issue, which is capped by law. In August 2011, a battle between Republicans and Democrats over raising the limit wasn't resolved until the U.S. government almost defaulted on its debt.

Lagarde called for "decisive action" on the issue.

She also said Greece should get two more years to meet austerity targets as agreed upon with its creditors. After nearly defaulting on its mountain of debt, Greece has survived on international bailouts since May 2010. But to secure and continue receiving the loans, Athens imposed tough austerity measures, such as spending cuts and tax increases, in an attempt to get its public finances in order.

"It's sometimes better to have a little more time. This is what we have advocated for Portugal, this is what we advocated for Spain, and this is what we are advocating for Greece," she said. "What I have said repeatedly about an additional two years was necessary for the country to actually face the fiscal consolidation program that is considered."

The IMF has scaled back its global growth forecast for 2012 to 3.3 percent from 3.5 percent, and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.

"We are not expecting a very, very strong recovery. The recovery continues, but it continues more slowly than we had expected earlier this year," said Lagarde. The slowdown is "having a ripple effect on emerging markets, and in particular in Asia."

She did praise recent steps to shore up Europe's financial system, which has been burdened by high government debt and weak banks in countries such as Greece and Spain, but stressed that more needs to be done.