Debt: IMF Warns Europe of Severe Repercussions



The International Monetary Fund warned that Europe must “get its act together” on issues of its sovereign debt on Tuesday, saying that delaying action could push its economy back into recession.

Europe a “major source of worry”

While advanced economies such as the United States and Japan are also facing criticism from international financial organizations for slow growth, the top economist at IMF noted that Europe in particular is “a major source of worry.”

The organization’s recommendations to Europe were for policymakers to secure and renew faith in national policies as well as the euro. In addition, the IMF implored the European Central Bank to lower interest rates to promote lending and investment, should economic growth continue to slow.

European markets have been violently affected by the eurozone debt crisis, while investors shy away because they are unconvinced that European leaders will be able to find a quick and viable solution. Greek debt is the catalyst for the European crisis, though IMF economist Jorg Decressin called the problems in Greece “eminently manageable.”

The south of Europe experienced another hit on Monday when Standard & Poor’s downgraded its ratings on Italy.

Global growth forecasts shrink

Only three months ago, the International Monetary Fund had a global growth prediction of 4.3% in 2011 and 4.5% in 2012. In the latest IMF report, the organization has slashed predictions across the globe, sitting at just 4% for both years.

Europe’s growth prediction was downgraded by almost half a percent to a 1.6% in 2011, while 2012 is predicted to see even less growth at just 1.1%. IMF figures show that the euro zone is almost at an economic standstill, growing at just 0.25% annual rate.

The IMF also slashed its forecasts for United States growth, as growth rates for 2011 were 2.5% in June and are now just 1.5%.

June’s predictions totalled the advanced economies of Europe, the U.S. and Japan growing 2.2% in 2011 and 2.6% in 2012. The IMF sharply sank these figures to their current state of 1.6% and 1.9%, respectively.

Though these figures predict what the IMF called “a weak and bumpy expansion,” the IMF stressed that slow growth and poor public confidence can push any of the struggling advanced economies back into recession.

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