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29 March 2024

Europe debt crisis still serious: IMF chief

IMF Managing Director Dominique Strauss-Kahn attends a meeting in New Delhi on December 2, 2010, where he said that the debt crisis in Europe should not be underestimated, but tipped Ireland to recover. (AFP)

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By AFP

The head of the International Monetary Fund (IMF) said in New Delhi on Thursday the debt crisis in Europe was still serious but he tipped Ireland to recover after its weekend bailout.

On Sunday, the European Union and the IMF announced an €85-billion ($111 billion) rescue package for Ireland to shore up its banking sector and enable the country to meet its debt obligations.

The comments by IMF managing director Dominique Strauss-Kahn came as the European Central Bank, holding a policy meeting, was expected to signal action to fight the eurozone debt crisis, notably with help for banks.

"The crisis in Europe is still strong" with some European countries at the "cliff-edge," Strauss-Kahn said in a speech to business leaders and ambassadors in New Delhi.

But he said the Irish rescue "should fix the problems" and the country's economy "will come back on on track rather rapidly," adding the IMF stood poised to assist other nations if needed.

The IMF bailout of Ireland has calmed fears about the Irish economy but led to intensified speculation that fellow eurozone debt-ridden financial stragglers Portugal and Spain could also need help in the future.

Greece, another eurozone laggard with chronic public finance problems, received a €110-billion joint bailout in May from the EU and IMF.

Strauss-Kahn contrasted Asia's economic vitality with the sluggish recovery in Europe and the United States, which are still struggling from the effects of the global financial crisis.

A number of European countries needed to reduce their public spending deficits to avoid running into trouble, he said, adding that even small economies "may create a lot of damage".

During and after the global financial crisis, all major world powers stimulated their economies to increase demand and to counterbalance the effects of the economic shock caused by the banking sector meltdown.

In most developed countries, this spending was financed through borrowing, leading to large deficits that have begun to worry investors.

"Global recovery is moving along, but is still emerging and fragile," said Strauss-Kahn, who is under pressure to run for the French presidency and whose one-day visit to New Delhi came days before an official trip by French President Nicholas Sarkozy.

"In parts of world, in Asia, South America and parts of Africa, growth is going well," Strauss-Kahn added, paying tribute to India which he said has "become an economic superpower".

"This has to be compared with what is happening in the US and with the situation in Europe," he said.

It was urgent that nations continued their economic cooperation as the world pulls out of the slump, he said.

"Growth policies must be as supportive as possible in advanced economies" facing difficulties, he added, defending a recent move by the United States to pump 600 billion dollars into its economy.

"If growth stalls in the US the consequences for the rest of the world would be huge," he said.

The IMF does not think there is a high chance of a double-dip recession, he said, adding the "downside risk is too great to accept".

Developed "countries must avoid any risk of going back to negative growth" while adopting strong medium-term policies to roll back stimulus packages and reduce debt, he said.