Persistent risk of another crisis in Europe, warns IMF | Florida Statesman

Persistent risk of another crisis in Europe, warns IMF

Florida Statesman Wednesday 18th April, 2012

• Search should be for credible, long-term commitments

• IMF urges more focus on increasing growth and decreasing unemployment in advanced economies

• Global growth of 3.5 per cent projected for 2012; improving to 4.1 per cent for 2013

WASHINGTON - The International Monetary Fund Wednesday warned that risk of another acute crisis in Europe remains a possibility, despite the progress made so far on building "firewalls" or bailout funds.

"The main risk remains that of another acute crisis in Europe. The building of the so-called firewalls, when it is completed, will represent major progress, but by themselves firewalls cannot solve the difficult fiscal, competitiveness, and growth issues that some of the European countries face," said Olivier Blanchard, IMF Economic Counselor and Director, Research Department, at the release of the latest World Economic Outlook report.

"The bad news on the macroeconomic front or the political front still carries the risk of triggering the type of dynamics that we saw last fall," Blanchard stated.

He stressed that the search should be for credible, long-term commitments, which could be achieved by passing measures that decrease trend spending and by putting in place fiscal rules that reduce deficits over time.

Insufficient progress in designing such a medium-term plan is especially noticeable in the United States and in Japan, Blanchard warned.

Turning to policies aimed at reducing risks, Blanchard advised a clear focus on Europe with further measures to decrease the links between sovereigns, the states, and the banks.

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