–Updates With Statement From Danish Economic Affairs Minister
–De Jager: Delaying Fiscal Consolidation Because Of Weak Growth ‘Risky’
–Belgian Deputy FinMin: But Success Depends On Restoring Growth
–Danish EconMin: Risks From IMF Lending To Inter-linked Countries

By Chris Cermak

WASHINGTON (MNI) – Dutch Finance Minister Jan Kees de Jager
Saturday warned of a “dangerous” overemphasis on accommodative monetary
policy over structural reform and said delaying fiscal consolidation in
Europe in the face of weak growth is “particularly risky.”

De Jager said markets have already shown the costs of relaxing
fiscal targets in terms of higher yields. Efforts to improve growth
prospects in Europe must therefore come “first and foremost” from
structural reform, de Jager said in prepared remarks for the
International Monetary Fund’s Spring Meetings.

The point was underlined by Danish Minister for Economic Affairs
Margrethe Vestager, who in her own statement warned, “Renewed
uncertainty in financial markets and underlying economic and financial
vulnerabilities clearly demonstrate that there is no room for fiscal or
structural policy relaxation.”

Vestager also said the IMF must “mitigate risks” to its lending
resources, which were doubled Friday by $430 billion. In an indirect
reference to programs for peripheral European nations, she said the
“high concentration of lending to closely inter-linked countries and
regions accentuates the importance” of ensuring resources are “firmly
safeguarded.

De Jager said monetary policy measures are providing “critical
breathing space but do not provide a fundamental solution to the
underlying problems many countries face today.

“Moreover, overemphasizing the role of accommodative monetary
policies while underemphasizing the urgency for fiscal consolidation can
be dangerous,” he said in the statement to the IMF’s steering committee,
the International Monetary and Financial Committee.

“Delaying fiscal consolidation in the face of weak growth appears
particularly risky in the current circumstances, where the debt crisis
has shown that market sentiment can change rapidly and unexpectedly to
the worse,” de Jager said. “Market pressures could exacerbate the costs
of delayed consolidation by a significant and possibly unsustainable
amount.”

But Belgium’s Deputy Finance Minister Steven Vanackere in his own
statement to the IMFC stressed that, while countries with high debt
levels have to reduce their deficits at an “adequate pace,”
consolidation must not come at the expense of economic growth.

“Success with this task (of fiscal consolidation) critically
depends on resuming more vigorous growth, reducing unemployment and
preserve social cohesion,” Vanackere said.

“The ‘paradox of the thrift’ under which aggressive upfront fiscal
consolidation lowers growth, worsens debt dynamics and paradoxically
triggers a loss of confidence, must be avoided,” he said.

Vanackere also said accommodative monetary policies and central
bank liquidity “remain justified” given the “period of fragile
recovery.” But outside of short-term support, he agreed the “far more
important task” involved structural reforms that could “enhance
productivity and international competitiveness.”

All three ministers agreed medium-term risks stem from outside the
Eurozone, especially from high budget deficits in the United States and
Japan, and also called for continued exchange rate rebalancing in
emerging countries like China.

In an indirect jab at the United States and China, de Jager said
that global imbalances and excessive global liquidity have “not been
adequately addressed” and said “accommodative monetary policies and
inflexible exchange rate policies could even aggravate these risks.”

** MNI Washington Bureau: 202-371-2121 **

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