IMF: Euro countries must act now to save banks

New report warns that to overcome crisis, the efforts to strengthen banks must accelerate.

The eurozone debt crisis could spread across the region if European countries do not take greater steps to fix the problems in their financial sectors, the International Monetary Fund's latest report warns.

Whilst predicting similar growth for 2011/12 as seen in the last year, the IMF said that the debt crisis in Ireland, Greece and Portugal could spread unless European countries step up efforts to fix the banks.

The IMF's Outlook for Europe economic survey estimates eurozone growth of 1.7 per cent this year and 1.9 per cent the next. It adds, however, that this outlook depends on restoring confidence in euro banks and continued bank lending.

Despite the debt rescue packages in place -- including a new aid deliver of €78bn from Finland to Portugal -- the report said that "downside risks to the outlook dominate."

The IMF continued in highlighting the need to carry out stress tests and follow-up programmes on banks, saying: "Financial linkages between countries with sovereign debt troubles and the rest of Europe could potentially pose more risk to the outlook. Restoring fiscal health, squarely addressing weak banks, the implementing structural reforms to restore competitiveness are key."

The report called some recovery "solid", particularly in eastern euro countries, but that otherwise stability was uneven. The UK, it warned, faces "considerable short-term uncertainty, as growth turned flat in late 2010 - taking out temporary weather-related effects - and fiscal consolidation accelerates."