IMF warns "large global spillovers" of eurozone debt crisis

10:00, June 21, 2011      

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The International Monetary Fund (IMF) on Monday warned Europe that there could be "large global spillovers" if euro area stakeholders fail to undertake decisive action to tackle the eurozone sovereign debt crisis.

"A broadly sound recovery continues, but the sovereign crisis in the periphery threatens to overwhelm this favorable outlook, and much remains to be done to secure a dynamic and resilient monetary union," the IMF said in a report on eurozone conditions.

Periphery euro countries, including Greece, Spain and some other high-debt-leveled countries, are facing "daunting challenges," said the IMF.

"With deeply intertwined fiscal and financial problems, failure to undertake decisive action could rapidly spread the tensions to the core of the euro area and result in large global spillovers," the Washington based international financial institution warned.

The IMF comments came after European Union finance officials failed to resolve Greece's sovereign debt crisis, just weeks before the eurozone member country faces default.

"The euro area is a globally important economy," John Lipsky, Acting Managing Director of the IMF said in a statement, "the crisis would be felt much more strongly around the world if it spread to the banks in the core of the euro area."

The 187-membered international fund cited that reasons of the debt crisis of the periphery euro countries include very high debt levels, severe competitiveness problems, and fragile banking systems.

It called for "a truly cohesive approach from all euro area stakeholders" to deal the challenge.

"Crucial is a determined commitment to adjustment in the program countries, including immediate and far-reaching structural reforms and an ambitious drive to open up the economy to foreign competition and foreign ownership along program commitments.

Privatization will contribute to these objectives beyond helping to establish debt sustainability. But continued financial support from other euro area members is also needed, the IMF added.

The fund also noted that even if the periphery crisis can be contained, a broad policy agenda lies ahead to boost growth and make Economic and Monetary Union more resilient.

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