By: Dr. Mike Campbell

The incoming head of the International Monetary Fund, Christine Lagarde, has called for governments to take “bold action” to tackle the faltering global economy, but the call is light on the specifics of how this should be achieved.

"The key message I wish to convey today [Friday] is that countries must act now - and act boldly - to steer their economies through this dangerous new phase of the recovery," Ms Lagarde said, speaking in London before going on to attend a G7 meeting held in Marseille. The same meeting heard from UK Chancellor, George Osborne, that the UK would adhere to its strict deficit reduction plans. He credited the UK’s debt reduction policies with Sterling’s avoidance of the bond market feeding frenzy which has afflicted economies on the periphery of the Eurozone, claiming that; “It is the rock of stability on which our economy is built”. That might be going a bit too far.

Ms Lagarde endorsed the UK’s fiscal rectitude with some notes of caution: “Since the summer, the outlook has become more subdued - including in the rest of Europe and the United States, the UK's major trading partners. So risk levels are rising. The policy stance remains appropriate, but this heightened risk means a heightened readiness to respond - particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment."

The G7 meeting is looking for a coordinated response to the economic problems which currently beset the markets. The Japanese finance minister, Jun Azumi is expected to explain Japan’s plans for currency intervention to weaken the Yen. The G7 acted in concert in the aftermath of Japan’s natural disaster to weken the Yen, but the effect was short-lived.
Unusually, it is not planned for the G7 to issue a communiqué after the meeting.