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IMF chief says situation in Europe still 'troubling'

08 December 2010, 23:22 CET
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(GENEVA) - The head of the IMF Dominique Strauss-Kahn said Wednesday that the situation in Europe, which is battling a debt crisis, remains troubling and that the future looked uncertain.

However, he insisted that the euro was not in danger, although the eurozone risked posting very slow growth if it failed to pull itself together.

"The situation in Europe remains troubling, and the future is more uncertain than ever," said Strauss-Kahn, managing director of the International Monetary Fund, in Geneva.

Despite the crisis gripping the EU, Strauss-Kahn indicated confidence in the single currency.

"I don't believe that the euro is in danger," he told a public forum organised by the United Nations.

"On the other hand, I think that if the eurozone does not pull itself together quickly enough, it would risk having periods of very slow, difficult growth, that it could avoid on condition that its governance is greatly improved."

Pascal Lamy, director-general of the World Trade Organization, noted that at the moment "there is one place on this planet where we are talking about restrictions, and that's Europe."

He explained that the region is suffering from a budgetary problem as it is unable to finance its social model as its workforce ages.

Reforms were necessary to help Europe adjust, but "these reforms are politically difficult."

In order "for this population to continue to benefit from this system would require either immigration or change."

Europe is suffering from a public debt crisis, with Greece and Ireland forced to tap into EU-IMF rescue funds to keep afloat.

European Union leaders have in recent days been debating whether to increase the size of an overall EU-IMF rescue fund.

Portugal, which like Greece and Ireland is reeling under its public debt burden, is now firmly in the firing line to need help next.

Strauss-Kahn said nevertheless that the international community should begin bolstering supervision to head off future crises.

"Without waiting for calm to be restored, we need to start rebuilding these governance structures. It's time for a triple comeback," said the IMF chief.

The international community has been looking at ways to bolster financial governance, including imposing stricter rules on banks, after a massive financial crisis in 2008.

Strauss-Kahn assessed that the effects of the crisis were "far from over" and reforms to prevent a repeat were not "not moving fast enough."

"Regulation is certainly very important, but all that must be supervised.

Supervision is still far behind, resolution of crises also," he said, pointing out that it was supervision that failed in the subprime meltdown.

In addition, he noted that the Greek and Irish episodes demonstrated the need for crisis resolution tools.

"We're far off the mark in terms of financial governance," he added.


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