IMF says crisis shouldn’t be underestimated
International Monetary Fund Managing Director Dominique Strauss-Kahn said the current European debt crisis shouldn’t be underestimated and pledged to support member countries who seek help from the lender.
The situation in Europe is “serious” and countries should decide for themselves if they require IMF support, Strauss-Kahn said in New Delhi today after meeting Indian Finance Minister Pranab Mukherjee.
“We shouldn’t underestimate the importance of this crisis,” said Strauss-Kahn, 61. “When some members want some support, technical support, financial support, we are happy to do it.
"But we are not a commercial bank, we are not knocking at doors saying we should provide you some loans. Countries are sovereign and they decide if they want some external help or not.”
Europe is in the throes of a sovereign debt crisis that spread from Greece to Ireland and threatens to engulf the entire euro-area.
Speculation the debt crisis will spread to Portugal and Spain grew after an €85bn aid package led by European Union governments and the IMF was authorised on November 28 for Ireland.
Ireland became the second euro country to seek a rescue after the Greek debt crisis earlier this year destabilised the currency and forced the EU to set up a €750bn rescue fund backed by the IMF.
European nations need to restore confidence in their public finances, Strauss-Kahn said at a business conference in New Delhi today.
Borrowing costs for Europe’s most-indebted nations have soared this week. The average yield for 10-year debt from Greece Ireland, Portugal, Spain and Italy reached a euro-era record.
Standard & Poor’s cut Ireland’s debt rating two steps on November 23. S&P said this week it placed Portugal’s long-term and short-term foreign and local currency sovereign credit ratings on “CreditWatch” with “negative implications,” reflecting its inability to reduce its current-account deficit.
The global economic recovery is fragile and uneven, with advanced economies facing high unemployment rates, Strauss-Kahn said. The world needs early-warning systems to tackle crises, he said.
“We need to sustain the global recovery,” Strauss-Kahn said. “We don’t believe at the IMF that the double dip is the most probable forecast but it is a possible tail risk.”
The Organisation for Economic Cooperation and Development on November 18 cut its global growth forecast for next year, predicting the world’s economy will expand 4.2pc next year instead of the 4.5pc predicted in May.
The IMF forecast in October world GDP may increase 4.2pc in 2011, compared with a 4.8pc gain in 2010.