Global money crisis 'is so dire war may erupt'

[BASEL]

The economic crisis is so dire mill­ions will face poverty, unrest and even war if banks are not cleaned up, the global finance regulator warns.

Recovery was impossible until the financial sector became smaller and healthier, Dominique Strauss-Kahn, head of the International Monetary Fund, said yesterday.

'Bluntly, the situation is dire,' he warned.

'This will dramatically affect unemployment and, for many countries, will be at the roots of unrest, some threat to democracy and maybe also end in war.'

His comments come less than two weeks before the London G20 summit, where prime minister Gordon Brown hopes to agree a global fiscal stimulus – injecting money to kick-start economies.

Mr Strauss-Kahn added: 'You can put in as much stimulus as you want.

'It will just melt in the sun as snow if, at the same time, you are not able to have a smaller but healthy financial sector at work.'

On Monday, business group the CBI said another cash inj­ection would be unaffordable.

Liberal Democrat treasury spokesman Vince Cable agreed with the IMF's warning.

'It's a major criticism and the government will not face up to reality,' Mr Cable added.

Shadow chancellor George Osborne said it made 'Gordon Brown's posit­ion look increasingly isolated'.

'The head of the IMF has now joined the CBI and other European governments in warning of the futility of a further fiscal stimulus,' he added.

Last week, the IMF said Britain would be one of the last major econom­ies to recover from the recession The country would still be contracting next year, while most others would be slowly expanding, it added.

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