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Christine Lagarde warns against 'complacent' Europe

By CNN wire staff
October 17, 2013 -- Updated 1625 GMT (0025 HKT)
STORY HIGHLIGHTS
  • IMF chief Christine Lagarde says Europe must reform "so their economies can unleash growth and create jobs."
  • Lagarde's comments come after the eurozone economy grew 0.3% in the second period of this year.
  • Youth unemployment in Spain and Greece is above 50%; while rates in Portugal, Italy and Ireland are all above 30%

(CNN) -- The head of the International Monetary Fund is warning European governments against complacency despite the region returning to growth earlier this year for the first time since 2011.

Speaking at the Fund's headquarters in Washington DC, managing director Christine Lagarde told CNN's Richard Quest that member states cannot afford "fatigue" on their commitments to create jobs and to shore up the region's banks.

Read more: Fishing for positives in Portugal's economy

"They need to move on with the European banking union," she said, "continue structural reforms so their economies can unleash growth and create jobs."

Lagarde's comments come after the eurozone economy grew 0.3% in the second period of this year following six consecutive quarters of contraction.

Europe out of limelight

Europe has been spared some market scrutiny recently, as headlines shifted to the U.S. debt ceiling negotiations and the Federal Reserve's bond-buying program.

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Solving Portugal's economic woes

Lagarde said that leaders in the currency union will be eager to remain out of the limelight.

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She told CNN: "[In the past two years] I don't think there has been a single G20 or IMF meeting without the eurozone being at the center of the debate and they don't want that to happen again."

Read more: Energy boss: No second bailout for Portugal

Lagarde added: "If they want that to last they have to continue doing the work that they have started."

Since the crisis began, European governments have had to contend with spiraling borrowing costs and state bailouts as nations struggled to repay their debts.

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In four years, Greece, Portugal, Cyprus and Ireland have received over 400 billion euros ($534 billion) in bailout packages from the euro-area's rescue funds.

And last year European finance ministers approved a 39.5 billion euro ($51.6 billion) lifeline for Spain's banks, struggling after the property bubble went bust.

In return for state aid, creditors have imposed strict rules on debtor nations, forcing them to carry out harsh austerity measures.

Read more: Will Serbia be next to join EU?

However, that strategy has come under question. Mujtaba Rahman, Europe director at Eurasia Group, said Germany may believe austerity is working but "clearly there's a strand that believes otherwise."

Some eurozone economies, he noted, believe they have improved after easing off on austerity.

Tackling youth unemployment

Lagarde, a former French finance minister, also highlighted youth unemployment as the biggest priority on the policy-making agenda.

She said: "Countries have to do their job; the IMF will help the process as well so we have to partner goodwill, the money available and political determination to focus on the right issues."

Read more: Mutti Merkel is no Iron Lady Thatcher

Youth unemployment in Spain and Greece is above 50%, where strict austerity programs are in place, while rates in Portugal, Italy and Ireland are all above 30%.

Widespread unemployment has led to anti-austerity protests in the worst-hit nations with many demonstrations turning violent.

But Rahman believes that youth unemployment is a problem that must be tackled by domestic governments rather than at the European level.

He added: "It's clear that politicians are not willing to mobilize a large amount of resources within the EU budget to tackle the problem of youth unemployment, not in a meaningful way."

He added: "At the margin there may be a commitment do something but this isn't meaningful."

CNN's Oliver Joy contributed to this report

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