The IMF pressed the eurozone on Wednesday to resolve its debt crisis, saying a solution was long “overdue,” and warned governments against pursuing drastic budget cuts at the expense of growth.
“Finding a durable solution to the euro area sovereign crisis has become more than overdue,” the IMF said in its regional economic outlook for Europe released in Brussels.
“(This) will require some difficult decisions to improve crisis management and a demonstration of unity behind the project of economic and monetary union that will convince markets,” it said, adding “the pursuit of nominal deficit targets should not come at the expense of risking a widespread contraction in economic activity.”
Blocked eight billion euros
The IMF said it is “confident” negotiations in Athens can come to “a positive conclusion” and allow the release of eight billion euros in blocked bailout loans.
Eurozone leaders agreed in July to expand the monetary union’s rescue fund and provide Greece with a second bailout to stem debt crisis contagion. But implementation has been delayed because a handful of parliaments have yet to approve the package.
Countries with access to funding “at historically low” interest rates “should consider delaying some of their fiscal consolidation,” it said, referring to nations with good credit ratings such as Germany and France.
These nations should “consider allowing automatic stabilizers work fully,” the IMF said, referring to measures which help support economies during downturns.
The IMF also said “monetary tightening in the cyclically more advanced economies will need to be paused or even reversed.”
The IMF urged the eurozone to consider using its crisis tools to guarantee bond issues from struggling countries and to commit to indemnify the European Central Bank against possible losses on bond purchases.
Both these moves have been discussed as part of a plan to bolster the effectiveness of the €440 billion ($580 billion) bailout fund.
The head of the IMF's Europe program Antonio Borges says the fund “should use its resources so that it encourages other investors to invest alongside them.”
Protests against cuts
Flights were grounded, schools shut and striking Greek workers took to the streets on Wednesday in protest against cuts the government says are needed to save the nation from bankruptcy.
The first nationwide walkout in months marks the start of what labor leaders say is a street campaign to derail emergency austerity steps launched last month by a government that has already imposed two years of tax hikes and wage cuts.
Thousands of state workers, pensioners and students gathered at a central Athens square, beating drums and waving banners reading “Erase the debt!” and “The rich must pay!”
A separate group of thousands of communist-affiliated workers marched into the central Syntagma square, carrying red flags and chanting: “We don't have jobs! We don't have rights! No sacrifice for the bosses!”
In June, more than 100 people were injured in clashes between demonstrators and police in Syntagma Square. A police official said about 1,000 officers were deploying on Wednesday, fewer than during June's protests.