Obama Consults Merkel and Lagarde on Economic Stimulus

NEW YORK (ForexNewsNow) – US President Barack Obama has consulted with German Chancellor Angela Merkel, and IMF Director Christine Lagarde in an effort to move forward with efforts to restore the global economy.

The President of the United States, who is set to propose a new plan to Congress to put the economy on track in early September, called the German Chancellor on Saturday. “The two leaders agreed […] on the importance of stimulating growth and employment in the global economy,” an official report stated.

A few hours earlier, Obama had also phoned Lagarde to discuss the need to implement policies that enhance economic growth and job creation in the short term, while ensuring fiscal consolidation in the medium-term. This was the first conversation between Barack Obama and the IMF boss.

During her speech on Saturday, August 27 in Jackson Hole, Lagarde had delivered the same message: “developments this summer have indicated that we are in a dangerous new phase….we must act now.”

The IMF is encouraging Europe and the US not to cut spending too quickly and to pursue monetary stimulus packages.

Significant barriers

The IMF believes that both the EU and US need to increase fiscal stimuli order to sustain boost the global economic recovery.

However, the United States does not appear to be in a good position to do so before the next presidential elections in November 2012. This is primarily because Republicans are reticent to increase government spending in any way since they seem to believe that excessive public debt is responsible for the current mess to begin with.

The Republican party refuses to delay any decrease in public spending and they have shown that they will do everything to prevent Barack Obama from launching a new stimulus plan.

Another difficulty arises from the fact that the emphasis on monetary stimuli advocated by Lagarde is the opposite of what was said the previous day at the Jackson Hole meeting.

In his highly anticipated speech, US Federal Reserve Chairman Ben Bernanke announced that his organization refused to launch a new round of quantitative easing (QE3) – effectively shunning the idea of fiscal stimulus for now – and passed the buck over to the politicians in Washington to boost the economy.

In sum, the US Capitol is increasingly looking like the place where the fate of the future of the global economy will be decided.

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