Euro zone deal only a partial solution, says IMF

An agreement reached by European countries for deeper economic integration was a step in the right direction but not a complete solution for the euro zone’s debt crisis, International Monetary Fund (IMF) chief economist Olivier Blanchard has said.

“What happened last week is important: it’s part of the solution, but it’s not the solution,” Blanchard told the Globes business conference in Tel Aviv on Sunday.

He did not say what further steps were needed.

European leaders agreed in Brussels on Friday to draft a new treaty for deeper euro zone economic integration, although Britain, the region’s third-largest economy, refused to join the 17 euro states and nine other EU countries in the fiscal union.

EU leaders also agreed that euro zone states and others should provide up to €200 billion in bilateral loans to the IMF to help tackle the crisis, with €150 billion coming from countries in the euro currency.

Jim O’Neill, chairman of Goldman Sachs Asset Management, however, said the most important thing that happened last week
was not “this bungled European deal,” but the release of data that showed a slowing trend of growth in China, the world’s number two economy.

O’Neill and Blanchard had diverging forecasts for growth in the US next year.

“I think 2012, in the end, will not be as good as 2011,” Blanchard said.

O’Neill disagreed, saying he was optimistic on the US economy and thinks growth will exceed 3% this quarter.