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Europe and U.S. should consider stimulating growth: IMF's Lagard

IMF Managing Director Christine Lagarde speaks at the Council on Foreign Relations forum in New York
IMF Managing Director Christine Lagarde speaks at the Council on Foreign Relations forum in New York

BERLIN (Reuters) - IMF chief Christine Lagarde said in an interview released on Sunday that Europe and the United States should consider stimulating economic growth, if the situation permits, to offset a crisis of confidence hitting the global economy.

"Looking at Europe, we recommend countries to adjust their austerity programs to a changed situation and consider measures to drive growth," news weekly Der Spiegel reported her as saying.

"If the United States launches a credible middle-term adjustment program, there is possibly room to abandon the short-term austerity measures and to introduce some measures to drive growth," she added.

Lagarde caused a stir last weekend when she urged policymakers to force Europe's banks to boost their capital or risk derailing a fragile global recovery, a call she reiterated in the interview.

European politicians last week rejected the call, which would involve raising up to 200 billion euros ($290 billion) in new capital, adding to fears that policymakers may be underestimating the severity of the debt crisis.

Turning to Germany, Europe's largest economy, Lagarde said its state finances were recovering well, hinting that Berlin may be well positioned to stimulate growth if it is hit by a downturn.

"It all depends on the circumstances, of course. If exports -- the foundation of the German economy -- collapse, the government could push back."

"If Germany stimulates domestic demand, it is good for the German economy and for its neighbors," she added, when asked if Germany should stimulate demand.

(Writing by Brian Rohan; Editing by Jon Loades-Carter)

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