SINTRA, Portugal May 25 Christine Lagarde,
managing director of the International Monetary Fund, called on
Sunday for closer cooperation among the world's central banks to
cope with the challenges of increasingly interlinked and complex
Speaking at a dinner in Sintra, Portugal, to kick off the
first annual ECB Forum conference, Lagarde said the potential
gains from cooperation could be huge in times of distress as
seen during the financial crisis.
"If policies are viewed only from a national perspective, we
may end up in a world of ad hoc intervention, less rebalancing,
and the potential to export financial instability," she said in
the text of her speech.
"This would be a world of possibly large welfare losses in
many countries, with not just spillover effects - from advanced
to emerging market economies, but also 'spillbacks' - feedback
effects from emerging market to large advanced economies."
The financial crisis has shown that coordinated
international action helped prevent disruption spreading to
economies around the globe, she said. And these upsides should
not be forgotten as the crisis subsides.
"We need a concerted effort to examine the effectiveness of
cooperative policy responses, their spillover effects, and their
global welfare implications - also in light of the evolution of
the financial system," Lagarde said.
She also said advanced economies could help reduce
volatility by communicating clearly the course of their monetary
Discussing the link between financial stability and
inflation, Lagarde said the current environment in the euro zone
was a sobering reminder of how balance sheet weakness could
constrain the ability of banks to support credit and investment,
ultimately contributing to low inflation.
(Reporting by Eva Taylor; Editing by Sophie Hares)