France’s Lagarde sees U.S. threat to euro zone recovery

By Jean-Baptiste Vey and Daniel Flynn

PARIS (BestGrowthStock) – French Economy Minister Christine Lagarde said on Wednesday stuttering growth in the United States posed the biggest risk to the euro zone’s recovery, but she played down any return to this year’s regional debt crisis.

Speaking hours after credit agency Standard & Poor’s downgraded Ireland’s sovereign rating, Lagarde said in an interview that she was not worried by France’s debt spreads and its banking sector remained well-capitalized.

“It is clear that the threat (to the euro zone recovery) comes from the West, because the South and the East are our big emerging markets which are powering growth,” Lagarde said when asked about U.S. growth, which slowed to 2.4 percent in the second quarter.

“Very clearly commercial real estate constitutes a drain on the U.S. recovery,” she said told Reuters by telephone.

Asked whether Ireland’s downgrade increased the likelihood of a return to this year’s euro zone crisis, triggered by Greece’s debt woes, Lagarde pointed to low debt yields for core European countries.

“The cost of refinancing has never been so low, in particular for France and Germany,” she said. “I am not at all concerned, because access to liquidity for banks is very comfortable at the moment.”

Lagarde hailed data on Wednesday showing a second consecutive monthly fall in French job seekers as a sign of “stabilization” in the domestic job market, and she denied that France was being left behind by stellar growth in Germany.

Berlin’s second-quarter growth of 2.2 percent, its highest since unification, overshadowed France’s more modest 0.6 percent recovery, sparking talk amongst economists that the euro zone’s second-largest economy was decoupling from its larger partner.

“The risk of decoupling is more between France-Germany and a certain number of other peripheral countries toward the south,” Lagarde said, adding that a drop in consumer prices and the strengthening jobs market in France made a “very positive cocktail of recovery.”

She declined to comment on whether France, which takes over the G20 and G8 presidencies next year, might consider organizing international moves to stabilize the yen, which has hit 15-year highs on concern the global recovery might fizzle out, complicating Tokyo’s efforts to emerge from years of stagnation.

“Obviously, international monetary equilibrium is one of the main subjects which will be discussed under the French presidency of the G20/G8,” she said.

France’s Lagarde sees U.S. threat to euro zone recovery