News Line

The market power threatens growth

June 17, 2010

The panic in financial markets could jeopardize the recovery, alarmed the International Monetary Fund (IMF). "Volatility in financial markets have increased significantly in recent weeks, financing costs have increased, and risky assets have been sold in all regions," the institution concerned in a document prepared for the G20 and the 4 June 5 last, but published Wednesday.

"These events reflect the growing concerns of investors about the viability of the public and foreign debt in Europe, a growing political uncertainty and a review of market forecasts on the strength of economic recovery and future growth prospects," continues IMF.

The euro area focuses concerns.The crisis of sovereign debt is now spreading to the banking sector, financial institutions hold large amounts of government bonds payday loans for self employed. Reappear blow of the "funding pressures on the European market." In this context, the decline of the euro is certainly beneficial for exports from the area. But "to the extent that depreciation is due to an increase in risk aversion, the net effect on growth could be negative."

To calm the markets, "credible policy measures" must be taken, the IMF recommended. The organization advocates "fiscal adjustment over the medium term, legislative reforms to pension systems, permanent reductions in spending outside social programs, and the strengthening of fiscal institutions.Do not mean to implement austerity measures immediately, the IMF warns, but in 2011.

• The severity of the threat the eurozone recovery
• Resuming more pronounced in the U.S. and Europe
• Forecast alarming the public debt
• French growth is for the "go-slow"
• The trade deficit widens