Page last updated at 14:08 GMT, Sunday, 21 December 2008

IMF warns of 'disturbing' UK debt

Dominique Strauss-Kahn
Mr Strauss-Kahn said the economic forecast was "very dark"

The level of debt in the UK is "disturbing," the head of the International Monetary Fund has said.

But Dominique Strauss-Kahn told the BBC that given the severity of the economic downturn, more government borrowing was the lesser of two evils.

Mr Stauss-Kahn was responding to a BBC question about it being easier to get insurance against McDonald's defaulting than UK government bonds.

He said 2009 would be "a really bad year" and society was going to suffer.

Public debt has risen to 650bn - 44.2% of UK gross domestic product. Consumer debt is more than 1.4 trillion.

In last month's pre-Budget report, the chancellor announced plans for a 20bn economic stimulus package, which would bring public debt close to 50% of GDP.

'Less bad solution'

Shaun Ley, of BBC Radio 4's The World This Weekend, asked Mr Strauss-Kahn: "Markets seem to have made their own judgements about this: it is cheaper to get insurance against big multinationals like BP and McDonald's defaulting than it is to get insurance against UK government bonds going under. That is quite disturbing, isn't it, when a country is viewed in that way?"

"Yes, it is," Mr Strauss-Kahn said. "That is a good example of the fact that we are facing something which is almost unknown."

He said governments around the world had no choice but to step in and spend more.

"I'm specially concerned by the fact that our forecast, already very dark... will be even darker if not enough fiscal stimulus is implemented," he said.

"The threat is that big today that I think that between two different problems, increasing deficit - which is never good - and fighting against recession - which is even worse - we have to choose the less bad solution."

He added that measures announced by the G20 group of leading industrial countries last month may not be sufficient to revive the global economy.

Interest rate cuts would not do enough and governments had to use fiscal stimulus, he said.

It would take a spending package equivalent to about 2% of global GDP - about $1.2 trillion (about 800bn) - to make a real difference, he said.

"The problem is that all the whole society is going to suffer," he added.



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