Europe pressed for action to end debt crisis

A day after advanced and emerging countries agreed to double the firepower of the International Monetary Fund to help contain the crisis, the IMF’s governing panel said on Saturday that the 17-nation euro area must cut government debt burdens further, push bold economic reforms and stabilize financial systems.

Reuters UK reports that debt problems will resurface and growth will stumble unless these steps are taken, the head of the IMF’s governing panel, Singapore’s finance minister, Tharman Shanmugaratnam, warned.

An uneasy calm returned to world financial markets after the Greek crisis subsided but the IMF is concerned that without strong action fresh tensions will erupt, sapping global growth.

The IMF panel said all advanced economies needed plans to rein in deficits, but it singled out the euro zone as crucial to revitalizing strong growth.

The euro area, the world’s second-largest economic bloc, already has slipped into a mild recession, weakening its major export partner China and other parts of emerging Asia, while growth in the United States remains sluggish.

Unless stronger growth is restored and investor confidence returns, the IMF and finance chiefs from around the globe said the world will not break out of a vicious debt-driven cycle.

“What was really critical in all our minds was to get back to normal growth over the medium term and preferably sooner rather than later, in other words within two to three years,” Tharman said at a news conference on Saturday.

“If we don’t get back to normal growth, if we don’t get GDP back to its potential levels, then fiscal sustainability is not possible either,” he warned.

The Group of 20 developed and emerging nations on Friday agreed to provide the IMF with a further $430 billion, more than doubling its lending power to erect a higher firewall in case the euro zone’s debt crisis spreads. That complements a $1 trillion fire-fighting fund being assembled by Europe.