WASHINGTON — Global leaders are sharply at odds over how to rescue Europe from its escalating debt crisis: Should they focus more urgently on economic growth or on budget cuts?
The disagreement presents another obstacle to solving the region’s financial crisis, and it pits one of the world’s most important lenders against Europe’s strongest economy.
The International Monetary Fund said Tuesday that encouraging growth should be policymakers’ highest priority. It issued the warning on a day when the lending organization cut its estimates for global growth this year and predicted a recession in Europe.
But Germany, the economic engine of Europe, is afraid it could get stuck paying much of the cost to bail out its weaker European neighbors. It is pushing instead for budget cuts, which the IMF says could weaken growth further and undermine market confidence.
The IMF is already lending to the region’s bailout fund and has a lead role in monitoring the progress that nations such as Greece make in reducing their government deficits. Germany, meanwhile, is also a large contributor to the bailout fund.
“There is a fundamental divergence in points of view,” said Eswar Prasad, a former IMF official and economics professor at Cornell University. The IMF’s emphasis on growth is “a subtle but important shift in the prioritization of the reforms.”
On Tuesday, the IMF reduced its forecasts for global growth this year to 3.3 percent. That’s below the 4 percent pace that the IMF projected in September. It’s also lower than the estimated 3.8 percent growth for 2011 and the 5.2 percent in 2010, the year after the U.S. recession ended.
