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Euro area crisis at critical stage: IMF.

WASHINGTON: Euro area crisis has reached a "critical stage" and member nations must make a "strong commitment" to the shared currency to stop the plunge in investor confidence, the International Monetary Fund said in a report that recommended issuing common debt as one solution.

"Despite extraordinary policy actions, bank and sovereign markets in many parts of the euro area remain under acute stress, raising questions about the viability of the monetary union itself," the Washington-based organisation said in a report. "The financial and economic environment continues to deteriorate. Investors are withholding funding from member states most in need, moving capital to safe havens and driving risk premiums to new records."

Europe's monetary system needs a closer union of its banks and more fiscal integration to "arrest the decline in confidence engulfing the region," the IMF said. A "strong commitment" to the monetary union would restore faith in the shared currency, the organisation said.

"The immediate priority is concrete action toward a banking union for the euro area," the IMF report said. "The proposed EU framework for harmonised national bank resolution processes is a necessary first step.

But it needs to go further. A deposit guarantee scheme needs to be established at the regional level to help break the links between domestic banks and their sovereigns, and support depositor confidence."

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Publication:Times of Oman (Muscat, Oman)
Date:Jun 23, 2012
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