IMF calls for move to tackle rising eurozone debt
THE International Monetary Fund (IMF) has piled pressure on European leaders due to meet tomorrow in Brussels, saying the debt crisis could have a major global impact if it's not tackled quickly.
It called for a major overhaul of the European rescue funds -- it wants bigger rescue vehicles with greater power to intervene in the markets.
The comments came as the IMF published a review of the 17-country euro area last night.
The review said growth in the euro area was on a broadly sound footing, but warned that the debt crisis threatened to undermine not just Europe but the world economy.
"Sovereign tensions constitute a key risk to the outlook, with possible large regional and global implications," the report stated.
The group, which is overseeing the bailout programmes in Ireland, Greece and Portugal, said the market was not convinced that Europe's leaders were close to agreeing a deal to contain the crisis.
"Despite adjustment efforts and support from euro-area member states and the European Central Bank, market participants remain unconvinced that a sustainable solution is at hand," the report said.
The IMF said the European Commission and the ECB thought that a Greek default or a credit event would trigger contagion to the core euro-area economies.
The IMF said it also saw serious risks of contagion, even under a strategy that tried to avoid default or credit events.
With Spain and Italy now under the spotlight from investors, the IMF called on heads of government to "scale up the capacity" of the rescue funds.
The IMF said the European rescue funds should be bigger and should do more.
"We would really advocate the crisis-management facilities to allow interventions in secondary markets, provide guarantees, backstops for other fiscal agents and for banks if necessary," according to Luc Everaert, IMF division chief for euro-area policies.
He also called for closer and more shared oversight of national budgets within the euro area.
"We need fiscal discipline and it will be unavoidable to subordinate some fiscal sovereignty for the common good," Mr Everaert said.
In June, eurozone finance ministers agreed to increase the spending power of the European Financial Stability Fund to €440bn.