IMF Urges Eurozone to Make More Determined, Collective Response to Crisis

Concrete road map to complete monetary union needed to boost confidence

Wide-ranging structural reforms essential to raise growth

Support for demand necessary in the short term to cushion impact of adjustment

A strong collective commitment to “a robust and complete monetary union” would help restore faith in its viability, the IMF statement said. It should encompass a credible path to a banking union as an immediate priority, and greater fiscal integration, with better governance and more risk sharing.

Elements of the banking union would include

• a common supervisory and macroprudential framework

• a deposit guarantee scheme, and

• a bank resolution authority.

"The IMF's assessment supports a positive agenda in the short and medium term," IMF Managing Director Christine Lagarde said.

“These steps should be supported by wide-ranging structural reforms throughout the euro area to raise growth, while demand support should be maintained in the short term to cushion the impact of the region’s adjustment efforts,” she added during her participation in the Eurogroup meeting in Luxembourg on June 21.

The annual policy consultations with the euro area are part of regular discussions with all 188 members of the IMF and come at a particularly difficult time for Europe. Within the euro area, the IMF, along with the European Central Bank (ECB) and the European Commission, is providing financial support to Greece, Ireland, and Portugal. It recently was asked to monitor eurozone support for Spain’s financial system.

Determined collective commitment needed

The IMF recognized the importance of the actions that have been taken to contain the crisis, including the ECB’s special liquidity interventions, the larger European and global firewall, the adoption of the Fiscal Compact, and the national governments’ commitment to fiscal consolidation and debt sustainability.

Low growth rates and rising market stress are hindering the reduction in debt levels, the IMF warned, adding that contagion from further escalation of the crisis would have a substantial global impact, especially on neighboring European economies.

Higher and more balanced growth

The IMF said that stronger steps toward a complete monetary union require wide-ranging structural reforms throughout the euro...