The International Monetary Fund (IMF) underestimated the impact of fiscal consolidation on economic growth, IMF managing director Christine Lagarde told German newspaper Handelsblatt in an interview, citing Greece as an example.

Christine Lagarde acknowledged that Europe was recovering, but warned against “misleading security” because of falling bond prices. “The recovery is underway. That is correct,” she said. “Some countries have successfully implemented the programmes, but that does not mean the crisis is over and our mission accomplished.”

In the case of Greece, the deep and enduring political crisis caused further uncertainty among investors, Lagarde noted.

“I am confident that fiscal consolidation and growth-friendly steps do not exclude one another. This is not an easy case, but highly indebted countries cannot avoid a significant reduction of their debt if they want to restore confidence in the markets,” Lagarde underlined.

“A country that can raise virtually no money from the markets, cannot afford to promote fiscal consolidation with small steps. This was the case in Greece,” she added.