(MENAFN - Arab News) The International Monetary Fund has urged European policymakers to deepen the financial and fiscal ties within the euro area with some urgency to restore sagging confidence in the global financial system.
The IMF's stark tone on the euro area debt crisis in its semi-annual checkup of the world's financial health was in marked contrast to the mood in Europe, where a European Central Bank decision to buy bonds of countries that accept an assistance program has removed immediate concerns about the survival of the euro.
"Despite many important steps already taken by policymakers, this agenda remains critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline," the IMF said in its Global Financial Stability Report (GFSR) released yesterday.
It said the euro area's debt crisis was the main threat to global financial stability, which had weakened in the last six months to leave confidence "very fragile".
The report adds to a gloomy backdrop ahead of the IMF's semi-annual meeting to be held in Tokyo this week, which will gather the world's financial leaders.
ECB Vice-President Vitor Constancio said his message to the IMF and World Bank gatherings is that Europe has made much progress in recent months.
On Tuesday, the fund said the global economic slowdown was worsening as it cut its growth forecasts for the second time since April.
Europe's troubles should also serve as a lesson to the heavily indebted US and Japan that delaying the necessary policy adjustments until markets force their hands would lead to "harsher economic outcomes", Jose Vinals, director of the IMF's monetary and capital markets department and the main author of the financial stability report, said.
"We should not let the current market conditions, which have improved, lead to a false sense of security," he told Reuters.