EU’s Economic Recovery Gloomy – IMF
December 5, 2010 1 Comment
The International Monetary Fund (IMF) warns that the euro zone debt crisis could dash EU’s hopes for economic recovery, amid continuing financial turmoil in the region.
In a report, due to be presented at a meeting of EU finance ministers in Brussels on Monday, IMF chief Dominique Strauss-Kahn urged the euro zone states to increase the size of their rescue fund, Reuters reported on Sunday. He added that the European Central Bank (ECB) should purchase more bonds if it wants to keep alive hopes for economic recovery in the 16-state bloc.
In May, the European Union and the IMF unveiled an economic rescue package worth 750 billion euro ($1 trillion) in an effort to prevent the debt-ridden countries such as Greece and Ireland from plunging into total economic wreck.
However, there are growing calls for more action from the EU member states to prevent the bloc’s debt crisis from spreading into countries such as Spain and Portugal primarily in the wake of the Irish bond market crisis in late November, which forced the EU finance ministers to grant Dublin a bailout package worth 85 billion euro to save its moribund economy.
As the brewing sovereign debt crisis threatens to unleash a domino effect that could jeopardize other vulnerable economies in Europe, the IMF chief stated that there is a “strong case for increasing the resources available for this safety net and making their use more flexible, including for the purpose of providing more effective support to banking systems.”
According to Strauss-Kahn’s report, the ECB is highly recommended to further expand its bond purchasing program in order to fend off more bankruptcies in the banking systems on the euro zone’s southern fringe. However, ECB President Jean-Claude Trichet on Saturday complained that it would be a tall order to expect the central bank to single-handedly bear the brunt of salvaging the flagging economies in Europe, adding the EU should enter the fray and contribute more to prevent the contagion.
The euro zone plunged into crisis in early 2010 with the specter of insolvency looming for countries such as Greece, Portugal, Italy, Ireland and Spain. The financial crisis dealt a devastating blow to the Greek economy, forcing the EU and the IMF to pay the debt-laden country a 110-billion-euro bailout in an effort to salvage the economy.
Barely six months since Greece was bailed out, another economic meltdown broke out this time in Ireland as the country’s banking sector hit the rock-bottom early in November. The contagious crisis has cast a harsh shadow of doubt over the long-term survival of the euro zone’s single currency, the euro.
The fallout comes as fears of further bailouts in Portugal, Belgium and Spain have sparked similar concerns that the euro would come under more pressure in near future.