New financial crisis looms, but can be avoided: IMF chief

Another financial crisis threatens the world economy, International Monetary Fund Director Christina Lagarde told a German weekly in comments published Sunday, but it can be avoided if world governments co-ordinate their actions.
"We can still avoid it. The options for governments and central banks are more limited than they were in 2009 since they have already burnt a lot of their powder," Lagarde told Spiegel magazine."But if various governments, international organisations and central banks can work together, then we can avoid this recession."
She said the current problems stem from "low economic growth and high government debt." "Both lower confidence in entire countries and sap the strength of their banking systems, especially if the banks hold large volumes of government debt. "We have to break through this vicious circle." But she noted that IMF forecasts from this summer showed that the world economy could sustain damage if confidence is not restored. For European countries - several of which have needed to be bailed out as their debts threatened to overwhelm them - she said the focus needed to be on: sticking to savings goals; adjusting to new, and sometimes smaller, government budgets; finding ways to boost growth; and recapitalizing bank holdings.