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Head of International Monetary Fund warns countries over excessive austerity

currencyThe chief of the International Monetary Fund has said that countries should approach their debt reduction schemes with caution and avoid taking drastic steps which could harm their economies.

Speaking in Zurich, Christine Lagarde warned that making too many spending cuts in rapid succession could hamper growth and ultimately reduce the country’s ability to tackle their debts.

However, Ms Lagarde did admit that some countries had no option but to implement a fast-track plan and was keen to emphasise that for some, this was the right approach.

But the head of the IMF added that ‘on the whole’ any debt problems should be dealt with in a ‘gradual and steady’ manner, in order to reduce the impact on the country’s economy.

Debt has been a major issue for many European countries and the majority are keen to bring their deficit under control as quickly as possible. But by attempting to achieve this via tax hikes and slashes in spending, many have seen their economies contract, making the deficit percentage even harder to reduce.

Spain is one of the countries struggling to get the balance right. Despite not having been at serious risk of default, the nation is nonetheless on its knees, metaphorically. Unemployment is currently at 24% and the economy has tumbled into a recession, but the government is still striving to shrink the debt from 8.5% to just 5.3% during 2012 and further to 3% or less by the end of next year. Campaigners say the target is undeliverable without completely shattering the economy.

The IMF has predicted that the global economy would expand by just 3.5% during 2012, with the US contributing 2.1%. The eurozone is expected to fare much worse, with a 17-nation recession predicted in the near future.

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