Brussels, 19/07/2012 (Agence Europe) - The crisis in the eurozone has reached a critical phase, warns the International Monetary Fund (IMF), urging leaders to put in place a banking union as quickly as possible. The IMF's annual report published on Wednesday 18 July highlights the differences between states, a sign of investor distrust. To restore confidence and attract investment in the countries of southern Europe, eurozone members will have to end the link between banking risks and sovereign debts.
For this, apart from the banking union, the economic and monetary union desperately needs to deepen budgetary integration. However, banking union has to be the first step, based on three pillars: a deposit guarantee mechanism, an authority able to deal with bank bankruptcy resolution and, last but not least, a single supervisory authority for banks. The IMF notes that it is especially on this third point that there has been progress. No significant movement has been made on the two others. In addition, some form of pooling of debt and strict budgetary discipline are also recommended.
Discipline on its own will not be enough to find a way out of the crisis. States need to take measures to boost growth, and this will involve reform of the labour market. So, to increase the competitiveness of the southern European countries, the key is to lower labour costs and to provide businesses with an environment that is more helpful to their entry onto the market. Furthermore, investment in new infrastructure is needed.
The European Central Bank (ECB) also has its role to play. Reducing its key interest rate to a record low of 0.75% forms a solid base. However, the IMF says, this rate could be reduced still further and accompanied by non-conventional measures. The report suggests “quantitative easing” through the purchase of sovereign bonds.
The scale of the task is great and the IMF concedes that these objectives will not be achieved from one day to the next. Decision makers must, however, get the ball rolling and prepare a roadmap. What is important is to demonstrate Europe's commitment to its currency and to restore confidence in the viability of the economic and monetary union. (EL/transl.rt)