Europe’s weakened economy is now the central threat to global recovery, as countries there struggle with heavy debt, banks face a reckoning over their lack of capital and growth is slowing, the International Monetary Fund said on Wednesday.
While the IMF estimated that growth in the US and emerging Asian and Latin countries remains on track, it scaled back projections for Europe and outlined issues on the continent that could unless controlled spark problems rivaling those of the 2008 collapse of Lehman Brothers.
The outlook for Europe was reduced, as the combined impact of government spending cuts, continued concern over national debt and uncertainty about the banking sector undermines European economy. The IMF projected that the 16 eurozone countries will grow 1 per cent in 2010 and 1.3 per cent in 2011.
The report emphasised how a problem that was considered limited in scope when it surfaced in Greece expanded to other European countries and is now one of the main issues facing the global economy. European governments are cutting spending and overhauling social programmes to curb record levels of debt.
The IMF also noted that with the US and nations such as Germany being considered classic havens, there has been pressure felt in Britain, and in weaker euro-area economies such as Portugal and Spain, to make a convincing effort to control deficits. While Europe, in conjunction with the IMF, established a fund to guarantee the repayment of euro-area government debt, the IMF noted that the calming effect of that programme is “wearing off.” Interests paid by countries such as Spain and Italy have been rising again in comparison to those paid by Germany, the continent's top economic performer. “After Greece’s fiscal troubles, investors are now re-pricing these risks across the region,” the IMF said.
{{/usCountry}}The IMF also noted that with the US and nations such as Germany being considered classic havens, there has been pressure felt in Britain, and in weaker euro-area economies such as Portugal and Spain, to make a convincing effort to control deficits. While Europe, in conjunction with the IMF, established a fund to guarantee the repayment of euro-area government debt, the IMF noted that the calming effect of that programme is “wearing off.” Interests paid by countries such as Spain and Italy have been rising again in comparison to those paid by Germany, the continent's top economic performer. “After Greece’s fiscal troubles, investors are now re-pricing these risks across the region,” the IMF said.
{{/usCountry}}The European banking system is plagued by a “legacy of unfinished cleansing,” which has left “pockets of vulnerability and poor profitability.”
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