Monday

29th Nov 2021

IMF: eurozone at centre of coming storm

  • IMF chief Christine Lagarde sees stormy times ahead (Photo: International Monetary Fund)

International Monetary Fund chief Christine Lagarde on Thursday (19 April) warned of "dark clouds" hanging over the global recovery, with the eurozone at the heart of the problem.

"We are seeing light recovery, blowing on the spring wind. But we are also seeing very dark clouds on the horizon," Lagarde said in a press conference in Washington.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"The eurozone is the epicentre of potential risk," she warned.

Her comments come ahead of the IMF's spring meeting, which is to decide on increasing its own resources - part of which could also be used to fund further eurozone bail-outs.

Lagarde said she has already received pledges of over €240 billion out of its €300 billion goal - most of which would come from the eurozone countries themselves, the rest being committed by non-euro states such as Japan, Sweden, Poland, Denmark, Norway and Switzerland. The US has so far not put up any cash on top of its regular contribution.

As for Europe's own financial 'firewall' made up of a temporary and a permanent - yet non-existent - bail-out fund, Lagarde said EU governments have taken "significant steps in recent months" and made a "significant improvement of the firewall."

"There is a little bit missing here or there but is shows significant determination to defend their currency zone," she said.

The IMF had been advocating for a combined firepower of €1 trillion, but the only concession they could get from funding-reluctant donors led by Germany was to increase the two funds' joint ceiling to €700 billion, even though their actual lending power will be €500 billion.

Another suggestion coming from the former French finance minister is likely to fall on deaf ears in Berlin: to use the two bail-out funds for direct re-capitalisation of troubled banks, notably Spanish ones, which are running out of cash despite the recent €1 trillion in cheap loans offered by the European Central Bank (ECB).

The two funds "could actually help in terms of recapitalization anywhere in the eurozone," she said. "What we are advocating is that this be done without channelling through the sovereigns," she added, meaning that the funding should not go via governments.

A report issued by the IMF on Tuesday warned that eurozone banks are still at risk of a credit crunch, despite the ECB action. But Berlin is likely to reject this idea, as funding from the two bail-out funds needs parliamentary approval in Germany.

Pressure is likely to increase on Germany to agree to some sort of funding for Spanish banks, as the country's borrowing costs have starting rising again.

Its government is struggling with worsening economic conditions and even the IMF is now advocating less austerity so as not aggravate the situation.

In addition, Italy on Wednesday announced it will not be able to reach its deficit target of 1.7 percent of GDP this year and have zero deficit next year due to worse-than-expected recession.

The EU commission on Thursday downplayed the move and said it remains confident Italy will reach zero deficit next year and return to surplus as soon as possible, helping it to pay back some of Rome's massive debt. While

While Italy is also under the EU's so-called excessive deficit procedure, its public balance sheet is not as bad as Spain's. But its debt - 123 percent of GDP - is double the level set under eurozone rules.

IMF worried by social cost of Greek austerity

The Greek economy and its people are reaching the "limit" of what they can endure in terms of austerity cuts, a senior IMF official has said in unusually political remarks.

IMF tells Germany to do more for eurozone

Germany's economy is doing well in its recovery, but the country should be more "active" in helping the rest of the eurozone cope with the crisis, the International Monetary Fund has said.

IMF doubles its funds, warns Europe

Emerging countries have joined Europe in doubling the budget of the International Monetary Fund, while asking for a bigger say in IMF governance.

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew report reveals bad environmental habits
  2. Nordic Council of MinistersImproving the integration of young refugees
  3. Nordic Council of MinistersNATO Secretary General guest at the Session of the Nordic Council
  4. Nordic Council of MinistersCan you love whoever you want in care homes?
  5. Nordic Council of MinistersNineteen demands by Nordic young people to save biodiversity
  6. Nordic Council of MinistersSustainable public procurement is an effective way to achieve global goals

Latest News

  1. Consultancies pocketing EU millions prompts MEP grilling
  2. Russian mercenaries using EU-trained soldiers in Africa
  3. EUobserver wins right to keep VIP-jet story online
  4. New Covid-19 variant fears shake EU This WEEK
  5. Researchers slam EU safety review of glyphosate
  6. What EU political ads regulation will - and will not - deliver
  7. Dialogue and action – Nordic cooperation and view on COP26
  8. Belgium goes into three-week 'lockdown light'

Join EUobserver

Support quality EU news

Join us