HERZILIYA, Israel (Reuters) - International Monetary Fund Managing Director Dominique Strauss-Kahn on Sunday urged the United States, Britain and other countries to cooperate on new policies and regulations in the wake of the financial crisis.
He told the annual Herziliya Conference that at the onset of the crisis, world leaders were “scared” and agreed to work together to end the crisis. But now, countries are formulating policies on their own.
“That doesn’t work. The lesson of co-operation is still necessary,” Strauss-Kahn said, citing U.S. President Barack Obama’s plans to curb activities at major banks, particularly betting in financial markets with their own money.
“It is absolutely impossible to get out of the crisis without global solutions,” he said. “I am not sure that’s the route on which we are.”
He also said Britain was also committed to pressing ahead with financial regulations.
The global economic recovery is recovering faster than expected, leading the IMF to revise its growth estimates higher. But growth is being led by Asia and emerging markets, Strauss-Kahn said, noting that growth in West was being fueled largely by public spending, .
“Until private demand is strong, it is difficult to talk about a real strong recovery,” he said.
Still, Strauss-Kahn cautioned against countries unwinding stimulus measures aimed at combating the downturn. Exiting too late can lead to higher debt but exiting too early may increase the risk of a double-dip recession, he said.
Such a case would pose large problems since policymakers have already used all their tools, he said.
Also, it wasn’t yet clear who would replace the decline in U.S. consumer spending. Strauss-Kahn said that emerging market countries would not be able to compensate for lower U.S. spending as consumers have started to save more.
Strauss-Kahn praised Israel’s response to the crisis, saying the government and central bank reacted quickly with policies that limited the impact of the crisis.
Editing by Bernard Orr