IMF chief says Europe looks like 'an ideas supermarket' for the U.S.

Let's first start with your outlook for the euro area. It feels like we've climbed out of an economic through. Is it now a clear path to stronger economic growth? Certainly there is. What we are seeing is inflation needs receding and that allows ECB to start rate cutting good for both investments and for consumers in the EU. Economic performance is strengthening. We project growth this year twice the level of last year. From 0.4 we go to 0.8% and then we project doubling this for next year 1.5%. What is very important is that at the same time, the euro area is now focusing on critical questions for the future, among them #1 how to lift up productivity at par with competitors, especially with the US. Let me bring up the inflation question too, because the ECB, like other central banks, concerns still that perhaps restrictive policy has not done enough to target inflation. Still concerned about a pick up in the numbers from here and whether geopolitics also gets in the way. What is the risk here that we still have not seen enough work to tame inflation versus the broader risk? If we don't see further interest rate cuts, then we undermine the growth story. It will be necessary for ECB to continue to carefully monitor incoming data and they will continue to take decisions meeting by meeting. But what we observe is that while indeed there has been some set back here in other places, the trajectory clearly is downwards and we think that getting to the terminal rate of 2.5% is insight in our projections. We anticipate more cuts this year and next year and that is based on the fact that even services inflation, which has been tougher to bring down, is starting to cooling off. Of course, we live at the time when the economies is impacted more than usual by political and geopolitical factors. They have to be carefully observed. But globally, the picture is better than we feared a year ago and that also translates in better conditions for recovery in the EU. Let me just and of course the eurozone, let me just stress two things. One, we have seen consumption in the Eurozone picking up. And two, we anticipate that cuts in interest rates would help investment in the Eurozone next year. And on that basis, we expect a better economic performance. But we come with this relatively good news and with a warning. There is no time to waste for the Eurozone to concentrate on productivity and that means two things. One, to achieve the full potential of the single market, it is not there yet. We want to see more labour market flexibility in Europe. We want to see deepening the financial markets, integrating them. We want to see the banking union, the capital union in a place. And two, we want to see much more attention to innovation, investing in R&D, making it possible for Europe to have businesses based on innovation in Europe to materialise in Europe. Right now Europe looks like ideas supermarket for the United States, a lot what is invented here and so being commercially viable and on scale over there. And when you look at the main obstacle, 27 countries not yet integrated in a single market, as you call for more Europe, not less, it's hard to see how progress happens from here, with some of the more conservative member countries of Europe less likely to trust parties in other countries. If we are moving to more extreme politics, is there a risk that populism gets in the way of further integration in Europe? Well, certainly there is a risk of that, but we are also seeing more and more voices in Europe concentrating on making sure that the future in Europe is in the strength of Europe, which is the single market. We have seen the reports come increasingly defining the pathway for strengthening European competitiveness. There is going to be a new European Commission. Of course, it has to be oriented towards people in the 27 countries and it's going to be a big lift to convince them that their better future comes in being more integrated. But when you compare Europe to the United States today, what is the biggest difference? The big difference is the US is more innovative. It is one market, it is one economy and it is performing way better than than the eurozone. Just look at the growth rates. We project 2.7% growth in US versus 0.8% in Europe. So time is to get very serious about Europe's future and ageing area. But one way we still enjoy creative people, highly educated capacity to do better and politicians will have that very important task. Carry people with you for the good of Europe, for the strength of Europe. Let's talk more about those politicians because there's been another warning from you, and this is around fiscal policy, that it needs work. You've used the megaphone on this issue for many, many months now, warning that Europe needs fiscal buffers. The European Commission has responded this week by putting France and six other countries on notice that they could be disciplined for budget deficits that exceed EU limits. Yet we are seeing more extreme policies here from countries like France, Marine Le Pen's party, for instance, promising big tax breaks, deep investment, more protectionism. Is there a concern from the IMF that some of these more extreme policies could also impact the ability to make improvements on fiscal budgets? It is a matter of the people in countries and the people they elect to make these decisions. It is not for us at the IMF. What we can do is just look at the economic picture and then present evidence of what would make good policy. For the sake of objectivity, we need to recognise that Europe has exhausted its buffers for a good reason. Europe had to deal with consecutive shocks that hit Europe more than it hit the the United States. The energy shock for sure was much more painful for Europe. And let me give credit where credit is due. Europe has done a phenomenal job to pull itself out of dependency on Russian oil and gas and retain growth in positive territory, but at the cost. And the cost is exhaustion of fiscal buffers, higher deficit and higher debt that needs to be serviced. Getting action on debt in the new governance of Europe is more pragmatic because it allows countries longer period, seven years to correct imbalances. What we are advocating for is send a strong signal that you will correct this imbalances because we know no economy can be successful if it is under a burden of debt and it has a deficit that makes it so difficult to to reach its objectives of creating jobs and opportunities for people. My fate is in every politician in Europe asking for the best of people in Europe and it is strong, competitive, highly productive economy here. Are you pleased that the European Commission though, has sent a message to member countries to finally get their house in order? Well, if you look at our own analysis, it is very similar to the analysis of the Commission that there there are countries in Europe that need to bring deficit and debt down, otherwise they put at risk the well-being of their economies and their people. And that message is one that you cannot hide from because numbers don't lie. What they say is that under the current pathway, countries with high deficit and high debt will have really hard time to be highly competitive. And for that reason, I strongly believe that action has to be taken and most importantly, a signal has to be sent. And actually, what we see now is that more and more debt recognition that you cannot run with a heavy burden on your back, which currently is the high debt and deficit in quite a number of countries in Europe. Let me tackle tariffs with you, because the IMF is saying that the EU should strengthen the single market while avoiding distortive industrial and trade policies. And the most significant decision we've had on this front has been the European decision to press ahead with tariffs on Chinese electric vehicles. Are these a necessary evil to strengthen the single market? Let's look at the context within which these decisions are taken. We have seen over the last years that they're real threats to security of supplies and that there is a real need for countries to be more thoughtful about how they built their strength, their resilience. We also have seen an increase in protectionist measures, in the pickup of industrial policies in the United States, in China and elsewhere. And in this context, European decision makers do need to reflect on what is best for the European economies. We know from experience that trade has been very positive for Europe. It has allowed the European economy to strengthen its role globally and it has led to reduction in cost and increase in standard of living for people in Europe. So holding on what has worked for Europe in the past and being strongly committed to an integrated global economy is something that has to be protected for the future. We have two messages. Number one, there is role for industrial policy, but it has to be well justified. If there are market failures, yes, there is a need to step in, for government to step in, or if there is an important objective like greening the economy that requires the government to invest more in research and development to accelerate this process, this restructuring of the economy. Yes, there is a role for industrial policy, but we also know from history that there are many steps taken in the past to protect national industries that have been a complete disaster. So let's not repeat those. We did an analysis of industrial policy measures in 2023. Here is what we learnt. 2600 measures. Of those, almost half come from US, Europe and China, and only 2/3 can be justified on the grounds of market failures. So we are going too fast into an area that we know from experience is likely to lead to loss for consumers and loss for the economy as a whole. We have to be very careful. And secondly, we know that competition makes us all do better. We have been championing competitive environment for that purpose. Let's as we respond to threats, threats from geopolitics, threats from climate change, threats from pandemics, let's not throw the baby with the bathwater. Just finally, can I ask you about the Fed? Because we've had some more hawkish members talking about the fight against inflation. Is it time for the Fed to get going in terms of cutting rates? We have to see how the data tells us the speed with which cutting rates should go. But there is clearly a trajectory that goes downwards in terms of inflation and it has to be carefully assessed because acting too early is bad, but so is acting too late, especially in this precarious environment when prospects for growth are improving. But let's face it, even 1.5% growth is not going to be enough for the aspirations of the European people, not enough to finance the necessary investments in public infrastructure, lift up the quality of education. And for that reason, that focus on productivity and growth and then thinking of monetary policy as supportive in that regard is as important as it is to protect financial stability. Kristalina, thank you so much for your time. I've got to let you go. I think you got a call for your time.