The International Monetary Fund (IMF) said today that policymakers must take decisive action on behalf of the financial sector in order to put the eurozone economy on a self-sustaining path toward growth.
Tentative signs of improvement have yet to “germinate into a recovery,” the IMF said. A key missing element has been a “proactive strategy to deal with a weakened financial system, including a review of capital needs to manage the recession, a cleansing of the financial system of its impaired assets, and a restructuring of weakened institutions.”
The IMF gave three reasons why a thorough cleaning of the financial system is in order:
- monetary and fiscal policies will not be as effective as they could be in supporting demand
- there continues to be a significant risk of a further negative feedback loop with the real economy
- the European financial system could well remain on a drip-feed of taxpayers’ money for a long time to come. Private investors will not step in, and constraints associated with government intervention will reduce overall efficiency.
It also applauded recent actions taken by the European Central Bank, which stands in sharp contrast to German Chancellor Angela Merkel who lashed out at the ECB for announcing its intent to buy 60 billion euros in covered bonds. See ECB Takes New Action.
Europe's in the grips of the worst recession in 60 years, the ECB fell well behind the cruve before taking more decisive action, and Merkel offers up an unprecedented attack on the central bank!
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