'No alternative' to slashing debt: German finance minister

Germany's finance minister said Friday there is "no alternative" to cutting bloated national balance sheets, pressing a hard line even as the IMF urged debt-addled countries to be given breathing space.

IMF managing director Christine Lagarde (R) takes a seat beside German Finance Minister Wolfgang Schaeuble at a debate during the annual meetings of the International Monetary Fund and World Bank in Tokyo on October 12. Schaeuble said Friday there is "no alternative" to cutting debt in European countries, a day after Lagarde called for Greece to be given more time to pare its deficit.

Wolfgang Schaeuble, the man who has the reigns of Europe's largest economy, stuck to Berlin's unbending position that the bitter medicine of debt reduction had to be swallowed.

"There's no alternative to reduce in the medium term too high sovereign debts, especially, and of course for... the eurozone as a whole," he said in a debate in Tokyo.

His comments come as the International Monetary Fund joined the growing chorus of voices calling for the grip of austerity to be relaxed amid fears for global growth and of the social effects of cuts.

Fund Managing Director Christine Lagarde said Thursday heavily-indebted countries needed longer to trim their fiscal cloth when she said: "Instead of frontloading heavily it is sometimes better... to have a bit more time."

She said the IMF was happy for troubled Greece to have another two years to get its house in order and bring budget deficits down to levels agreed with international creditors.

But in a debate on the sidelines of the IMF's annual meeting in Tokyo, which was briefly interrupted by a minor earthquake, Schaeuble cautioned against any slippage.

"I think it's even more important for sustainable growth that investors and consumers have some confidence," he said.

"We have to stick to what we announced and we have to implement it step by step."

Answering questions about the effects of austerity, Schaeuble said there would always be resistance.

"Structural reform means for example labour market reforms. I can tell you, there are lots of demonstrations against labour market reforms. If you don't feel some pressure... you'll never get the decision in a democratic organisation," he said, referring to demonstrations in Spain.

Lagarde, who earlier in the day said "wartime levels" of debt were the "greatest roadblock" to future growth, said her position had not changed, insisting debt-reduction was vital, but that it could not be rushed.

"Consistently we've said the same thing: that adjustment... or fiscal consolidation... is necessary.

"But it's a factor of pace. You know, at which pace does it happen?"

Lagarde said austerity could not be the only solution for troubled economies, pointing to the human cost of cuts.

"If people stay away from the job market, they lose hope... which is why it's critical that while maintaining those policies of fiscal consolidation where these are needed, there is also concern for growth, so that jobs can be created."

Greece on Thursday said its unemployment rate had topped 25 percent -- the same level as recession-wracked Spain. Both countries have been hit by mass protests over austerity programmes.

This week the OECD said unemployment in advanced countries stood at 7.9 percent, or around 47.8 million people, 13.1 million more than at the onset of the financial crisis in 2008.

And the International Labour Organization said around the world the figure was 30 million more.

Commentators have suggested that Lagarde is shifting the IMF's stance on the need for austerity, at least partially, in response to the stumbling world economy.

The Fund's latest forecast, released this week, said the global economy was on track to grow 3.3 percent in 2012, down from its July estimate of 3.5 percent.

The pace of growth next year would also be moderated, forecasters said, suggesting an expansion of 3.6 percent next year, also lower than a July estimate of 3.9 percent.

Jacob Kirkegaard, an economist at the Pesterson Institute in Washington said Lagarde's emphasis on the need for a more nuanced approach to debt was not a sudden policy adjustment.

"I think it is part of the longer-term shift in the IMF's position that has been under way for some time, which has seen the IMF move to a gradually more flexible stance on the need for austerity," he said.

"In Europe there is obviously the spillover effects, from when all your neighbours are doing austerity... it will affect you as well.

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Writer: AFP
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