THE new head of the IMF on Saturday called on global policymakers to pursue urgent action, including forcing European banks to bulk up their capital, to prevent a descent into a renewed world recession.

    “Developments this summer have indicated we are in a dangerous new phase,” International Monetary Fund (IMF) Managing Director Christine Lagarde said at a conference for top officials and leading economists from around the globe.

    “The stakes are clear; we risk seeing the fragile recovery derailed. So we must act now,” she said.

    Two years after the end of the worst of the financial crisis, growth in the United States and Europe is sputtering as government debt burdens surge.

    Borrowing costs for European banks are rising as lenders balk at providing any but the shortest maturity funds on fears over bank exposure to shaky euro zone sovereign debts. Sharp swings in global financial markets have intensified strains.

    Complicating the picture is policymaker indecision on both sides of the Atlantic.

    European leaders are fighting over who should pay the bill for taming a raging sovereign debt crisis. In the United States, lawmakers and President Barack Obama fought a contentious budget battle earlier this summer that resulted in the loss of the nation’s coveted “AAA” debt rating from Standard & Poor’s.

    Lagarde said the Group of 20 leading economies should use a meeting in November to address the global economy’s woes in a convincing fashion, and she used her speech — her first major policy address since taking the helm at the IMF in July — to open a new front in dealing with strains at European banks.

    She called for a “mandatory substantial recapitalization,” through private channels if possible, but otherwise through some form of public, Europe-wide funding, such as the European Financial Stability Facility.

    Lagarde also warned advanced economies away from tightening their belts so fast that it imperils recovery.

    “Put simply, macroeconomic policies must support growth,” the former French economy minister said. On Friday, she made the same point in a phone conversation with U.S. President Barack Obama, in which the White House said they agreed on the need for policies to spur job creation.

    “Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation,” Lagarde said, adding that central banks should stand ready to jump back into unconventional policy actions if needed.

    European Central Bank President Jean-Claude Trichet, who appeared alongside Lagarde, emphasized the need to safeguard price stability as a foundation for healthy growth.

    Lagarde suggested a fractured political process in Europe was contributing to insecurity. “Europe must recommit credibly to a common vision, and it needs to be built on solid foundations — including, for example, fiscal rules that actually work,” Lagarde said.

    Lagarde said shoring up European banks was key to “cutting the chains of contagion” in the continent’s spreading debt crisis.

    (SD-Agencies)