Brussels, 22/06/2012 (Agence Europe) - Christine Lagarde, the IMF director general, published the IMF's recommendations on Thursday 21 June for a sustainable economic and monetary union in the eurozone and smashing the vicious circle of sovereign debt crisis and bank problems. She called for direct recapitalisation of banks (bypassing central government), which is what Spain is demanding (Germany opposes this). In the face of rising tension and doubts about the health of banks in the eurozone, Lagarde said she hoped wisdom would win the day because the monetary system has been proved to be viable. The European summit this week will be deciding on moves to boost the economic arm of EMU.
According to the IMF, the eurozone should announce a three-pronged approach for the medium-term: a banking union including EU supervision of banks, a common crisis management system and bank restructurings and a pan-European savings guarantee system; a budget union with greater resources and centralised controls at EU level, including a gradual pooling of public debt (Lagarde placed great stress on the word “pooled”); and structural reforms to boost competitiveness on the labour market and in the service industry.
Once they have been decided upon, all three aspects should be implemented immediately and a “creative” monetary policy to stimulate growth through conventional or special measures should give the ECB greater room for manoeuvre, said Lagarde. Budget consolidation should continue based on structural targets - in other words, calculated in terms of the economic cycle rather than in nominal terms and weak banks should be recapitalised, preferably through direct financing from the bailout funds so that the bailout does not aggravate public debt.
The Commission broadly backs the IMF's ideas, said Euro Commissioner Olli Rehn, which amount to rebuilding economic and monetary union. Juncker also welcomed the IMF's suggestions. (MB/transl.fl)