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French Finance Minister Christine Lagarde announces her candidacy for IMF role at Ministere des Finances on May 25, 2011 in Paris, France. - 

Steve Chiotakis: A warning today from the International Monetary Fund. IMF chief Christine Lagarde says U.S. and European governments need to avert disaster. And the way to do it, she says, is by spending some money to stimulate their economies.

Marketplace's Stephen Beard reports.

Stephen Beard: Christine Lagarde, in a German press interview, says the global outlook darkened quite suddenly over the summer. The IMF's new chief says some key economic indicators have turned down and there's been a rapid loss of confidence in the U.S. and Europe.

She's calling for action on both side of the pond. She wants governments to abandon their public spending cuts and pump more money into their economies.

Tim Leunig of the London School of Economics says the IMF is right -- we do face a downward spiral.

Tim Leunig: The American job numbers for example were terrible. Absolutely terrible. So there is good evidence that things are going wrong. Unemployment will go up. More people will lose their homes. That really isn't what we want.

Christine Lagarde acknowledges that governments have used up a lot of ammunition trying to stimulate their economies with increased public spending. But she says if they coordinate their policies they can afford to do more. In fact, she says, they can't afford not to.

In London I'm Stephen Beard for Marketplace.