Bob Moon: The quest for a fix is now focused on a gathering over the next two days of the so-called G20: leaders of the top developed and developing nations. It's part of the annual meeting of the International Monetary Fund and the World Bank. The topic? What else? The worsening European debt crisis, and what to do about it.
John Lipsky is an economist and a special adviser to IMF managing director Christine Lagarde. Welcome, sir.
John Lipsky: Thank you.
Moon: We woke up this morning to some ongoing bad news; global markets down. This comes after the IMF put out a report that the global economy is entering a 'dangerous new phase.' Should the markets be this fearful?
Lipsky: Well, I'm not in the business of second-guessing markets, but advanced economies are growing too slowly to make a dent in their high unemployment rates, and some emerging economies are growing rapidly enough that they're running into some inflationary challenges. So we need rebalancing, and what is required is clarity of vision on the part of policymakers and straightforward action.
Moon: Is it realistic, though, to expect all these different political interests, particularly in Europe, to find the solution to this?
Lipsky: Europe's problems are imminently manageable and they have, in fact, elicited some strong new policy initiatives over the past year and a half that are often undervalued or overlooked. But there are still challenges ahead. One, to deal with budgetary challenges that face many of the European economies. Secondly, to bolster the banks that face potential weaknesses because of the problems of their government finances. And third, to complete the governance reforms in the eurozone that will give greater confidence to investors and others.
Moon: But how? How does that happen?
Lipsky: Oh, well first of all, all governments in the eurozone have committed in the past months to new fiscal initiatives that would produce better balance. The challenge is to make those plans concrete.
Moon: I wish I had a nickel for all the times I've heard the word "challenges" come up in this conversation so far. You have said rather recently that you didn't think we were at risk of entering a global recession. Has that view changed, and why or why not?
Lipsky: Global growth is actually a bit better than the long-term average, but the problems, as I said earlier, is that distribution is wrong and given the level of unused capacity in advanced economies and the level of unemployment --
Moon: Unused capacity -- what does that mean to our average listener?
Lipsky: Plant that is idle, workers that are unemployed who want to be employed -- that's an easy one to look at. But also productive capacity that is not fully used and could be used without creating inflation pressures.
Moon: So what I think I hear you saying is still no global recession?
Lipsky: That's correct. If -- if -- the policy initiatives that have underpinned our forecast are put in place.
Moon: Given this intensifying crisis, has the role of the IMF intensified as well?
Lipsky: Yes, I think that's fair enough to say. There have been a substantial increase in the financial resources available, to be able to respond to the challenges.
Moon: So making loans?
Lipsky: Exactly. And new initiatives in analysis and discussion and interaction with our members to strengthen our understanding of systemic issues, and in particular, the way that the financial system internationally interacts with the real economy.
Moon: I must say, Mr. Lipsky, that you're much more optimistic than I've been hearing from other quarters.
Lipsky: Well, I don't know who you've been talking to but our view is pretty clear: there are significant challenges, there are significant risks, but there are policies available to meet the challenges. They're not simple, they're not easy, they require focus, they require political will, and above all, they require international cooperation. And that exactly is the theme of the annual meetings here.
Moon: I think maybe the subtle difference here is that you think there is the political will.
Lipsky: I believe so. It's very clearly in everyone's interest to both cooperate and to act.
Moon: John Lipsky is a special adviser to the International Monetary Fund. Thank you for joining us, sir.
Lipsky: Thank you.