Group5 – IMF in Europe

IMF in Euro Area


IMF’s responsibilities in Europe

The IMF provides policy advice and economic analysis as part of its surveillance process for individual economies. In addition to its policy discussions with the 18 individual members of the Euro Area, the IMF also holds consultations annually for the euro area as a whole.


IMF and Crisis Programs in the Euro Area

The IMF—facing unprecedented challenges in the Euro Zone and against the backdrop of the Lehman crisis—recognized early in its EU engagement that the high odds of spillovers to other vulnerable members of the currency union posed potentially severe regional and global systemic risks.


The world economy will not recover without a reasonably healthy European recovery. The US economy will not enjoy the sustained recovery without global recovery. That was the key lesson of the global crisis of 2007-09. Crises that initially affect large parts of the global economy and financial system have adverse impacts in all parts of the globe.


The major policy instrument available to the United States to contain the European crisis aftermath is the International Monetary Fund. The United States should continue to provide maximum, constructive support for the IMF in carrying out its responsibilities for the promotion of global growth and financial stability.


IMF’s activities during crisis in Europe

  1. The program of Greek economic and financial stabilization and reform approved by the IMF Executive Board;


  1. The IMF positively respond to cooperate with the ESM, using the Greek program as a template to deal with the Fund’s core mission;


  1. The IMF is not only lending to emerging market and developing countries. Each IMF member may call upon its financial resources;


  1. It is needed to restore and maintain economic growth in Europe, a key area of needed IMF policy advice for Europe is on strengthening their banks that now face the high probability of another round of substantially impaired assets and the risk of sovereign defaults;


  1. All IMF-supported reform programs involve a balance between painful policy adjustments that adversely affect economic growth in the short run and necessary, temporary financial support;


  1. The contribution of IMF lending to perpetuation of moral hazard is greatly exaggerated under current, and most, circumstances;


  1. The IMF will be called upon to lend more to European countries, will run out of resources to lend, or will leave non-European members of the IMF in the financial lurch.


IMF’s protections to Europe

IMF chief economist and economic counsellor, Maurice Obstfeld, said in the global lender’s outlook. « Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums. »


In current situation, Euro area growth is expected to reach only 1.7 percent this year and continue slowing to 1.5 percent next year, after growing at a 2.0 percent pace last year.

To combat slowing growth, the IMF called for advanced economies to « maintain easy monetary policies, » including potential expansion of asset purchases in Europe, and increase government spending on education, technology and infrastructure. Many countries also need reforms to increase participation in labor markets, improve the match between skills and jobs, and a reduction in barriers to market entry, the IMF said.


IMF’s expectations in Europe

International Monetary Fund Managing Director Christine Lagarde said on Sunday that she was worried about the result of looming elections in Europe, though she insisted the euro zone was making progress in resolving its economic problems.







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