Europe must limit crisis damage amid stagflation threat: IMF chief

PARIS, March 17, 2008 (AFP) – The most urgent economic priority for European governments is to limit the damage from “the financial market crisis” amid threats of inflation and recession, the head of the IMF said here on Monday. Reforms could take different paths in different countries, and a consensus was needed, as had been achieved with success in Denmark and The Netherlands.

“At this time, the priority for European governments should be containing the economic damage from the financial market crisis,” the head of the International Monetary Fund, Dominique Strauss-Kahn, told a joint conference with the OECD.

“This is difficult because we are in an economic environment where inflation and recession are both potential problems.”

Stagflation is the combination of rising prices, which forces central banks to keep interest rates high, and slowing growth, when they would normally reduce lending costs so as to bolster the economy.

Analysts have wared that stagflation could become a problem again as the fallout from the US housing market collapse hits the US economy and sparks a flight into commodities such as gold and oil which in turn forces up inflation.

Over the weekend, the US Federal Reserve announced a