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Economy

Davos: Monti campaigns, Lagarde looks ahead

The World Economic Forum in Davos is an ideal platform for leaders to draw attention to their own interests. Italian Prime Minister Mario Monti campaigns while IMF head Christine Lagarde talks like a visionary.

With parliamentary elections slated for February, Mario Monti used his appearance at Davos to boost his election campaign.

The government-appointed interim prime minister first thanked Italian citizens for enduring and supporting the numerous harsh reforms he initiated over the past 14 months.

Then he took aim at his predecessor, Silvio Berlusconi, who plans to run for office again in the upcoming election. Without mentioning Berlusconi by name, Monti said that the former government had run the country to the brink of disaster.

Praising reforms

For years, Italy has lived "with the illusion that we could promise change without delivering any real reforms," he said.

The country has dodged numerous challenges in this millennium, such as globalization, technological innovation and an aging population, and has delayed important decisions. As a result, high taxes and a debt crisis are paralyzing the country, Monti said.

Monti, a nonpartisan leader at the helm of a technocratic government since November 2011, has introduced a number of reforms in various areas, such as pensions and the energy, financial and retail sectors where he has created greater competition. According to the Organization for Economic Co-operation (OECD), the reforms have generated 0.4 percent additional annual economic growth.

Monti said he never once blamed Europe for the cuts, which have often been severe. "I always said…we must do this in our interest and (that of) future generations of Italians."

Criticism of Merkel

But in Davos, Monti was not sparing of criticism of his European counterparts, including German Chancellor Angela Merkel, although he again did not mention any names. Northern Europeans, he said, had failed for a long time to understand that the debt crisis couldn't be resolved with austerity measures alone. Every country needs to clean up its finances, he said, adding that it had been a tough fight, both intellectually and politically, to convince the northern eurozone countries that this would not be sufficient if the markets no longer fully trusted the common currency.

Monti also commented on the plan of British Prime Minister David Cameron to hold a referendum on whether the country should stay in or drop out of the European Union. "I am confident if there is to be a referendum, the UK citizens will decide to stay in the EU and continue to shape its future," he said. "The EU does not need unwilling Europeans – we desperately need willing Europeans."

Calls for greater equality

Monti ended his speech in campaign mode, with an eye to the Italian parliamentary election in February. He said he has decided to lead a civic society movement. "I see a need for a new form of politics beyond old traditional coalitions," he said. "I call on the vibrant forces of society, of which there are enormous strengths in Italy, to support an agenda of reforms." The goal, he added, is to establish a competitive social market economy in Italy and Europe.

IMF Managing Director Christine Lagarde
(EPA/Olivier Hoslet)

IMF director Christine Lagarde outlined her vision for the future

In particular, underprivileged Europeans have a right to see this plan implemented, Monti said. Millions of unemployed Europeans are victims of governments that have been weak in combating tax evasion, corruption and vested interests.

Unlike Monti, Christine Lagarde, director of the International Monetary Fund (IMF), has no election campaign to run. She has frequently been at odds with European politicians, however, on the best approach to overcome the sovereign debt crisis. But she chose not to delve into any details about the debt crisis, mentioning only that the world economy would grow slower this year than originally forecast, according to the latest IMF economic outlook.

Instead, Lagarde used the forum to "take a break from looking at short-term developments" to look into the future. In 2025, she said, two-thirds of the world's population will live in Asia. Already today, more than 60 percent of people in Africa and the Arab countries are younger than 30. These demographics will require a new economic form with fewer barriers, more transparency, greater opportunities for women and a more equitable distribution of wealth, she said.

Risk of social inequality

"I believe that the economics profession and the policy community have downplayed inequality for too long," Lagarde said. "Now all of us have a better understanding that a more equal distribution of income allows for more economic stability, more sustained economic growth and healthier societies with stronger bonds of cohesion and trust."

A study commissioned by the World Economic Forum identified the growing gap between rich and poor as one of the largest threats to the global economy. Education, social security systems and minimum wages could help, she urged.

Equal rights for men and women are another important point that could have a positive impact on the economy, Lagarde said. She also warned that the destruction of the environment, especially global warming, poses a huge threat. Unless action were taken to combat global warming, she said, the next generation would be "roasted, toasted, fried and grilled."

In the future, the global economy will be increasingly impacted by the developing countries and emerging economies, Lagarde said. The most recent IMF economic projection shows average economic growth of 5.5 percent in developing countries and emerging markets, while growth has stagnated in the eurozone.

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