The euro area must have a mechanism for greater financial crisis and the European Central Bank should increase its purchases of bonds to prevent the crisis of sovereign debt hamper global economic recovery, said the IMF.
The Director General of the International Monetary Fund Dominique Strauss-Kahn will present on Monday at the Eurogroup these conclusions in a report on the euro area economy which Reuters has learned.
"The financial storm that affects the periphery (euro area) is a serious downside risk" to economic growth and could derail the recovery, the IMF judge.
The Fund intends to inform the finance ministers of the euro area and the aid program to Ireland 85 billion euros last Sunday and approved the project to sustain the mechanism of crisis management initiatives are good but insufficient.
"Many things argue for increased resources available to this mechanism and for a more flexible use of them, including to provide more effective support to the banking system," the IMF.
The European Fund Financial Stability (FESF) is currently equipped with 750 billion euros.It is intended to provide financial assistance to countries in need in exchange for reforms and austerity measures.
The European Union decided last Sunday to sustain after 2013 the permanent mechanism for crisis management, which include a progressive involvement of the private sector.
MES (European Stability Mechanism) will enter into force in 2013 and will replace the current European Financial Stability Fund (FESF).
BERLIN Frowning
Belgian Finance Minister Didier Reynders said Saturday that the European mechanism for crisis management should have qualified for more money than it currently has, and that an increase could occur before 2013.
The idea of this mechanism still abound, which is favorable for example the President of the European Central Bank (ECB) Jean-Claude Trichet, however, is not welcomed by everyone, and especially Germany , who had already found fault with the establishment of FESF.
To avoid the cost of borrowing for countries such as Portugal and Spain do fly, the ECB has bought their bonds on the market, but in amounts well below what is practiced in the United States.
Exceptional measures of the ECB, in the allocation of liquidity and purchases of bonds, as well as measures to support the banking sector in the EU must stay in place and even be developed until systemic uncertainty has subsided, after which they will be phased out, recommends the fund.
He added that if the downside risks to growth prospects were to be realized and that deflationary pressures were evident, the ECB should cut interest rates.
Finally, the IMF notes that the reform of the EU budget should be more rigorous and longer automatically applied sanctions to violators.