| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : Global Economy Last Updated: Oct 10, 2012 - 8:32 AM


IMF says European crisis has increased risks to global financial stability
By Finfacts Team
Oct 10, 2012 - 7:29 AM

Email this article
 Printer friendly page

Risks to global financial stability have increased and financial markets have been volatile as European policymakers grapple with the ongoing crisis, the IMF said in its latest assessment of the global financial sector. The Eurozone crisis has moved from a sudden stop into a capital-flight phase despite substantial policy interventions, as cross-border private capital is being repatriated from the periphery back to the core of the currency union.

Faltering market confidence has led to capital flight from countries on the ‘periphery’ to the core of the Eurozone. This has meant higher borrowing costs and a growing wedge between the economic and financial ‘haves’ and ‘have-nots’.

European policymakers have taken a number of important steps in recent months to help reverse the fragmentation of Eurozone financial markets and strengthen the European Monetary Union, the IMF said in its latest 'Global Financial Stability Report'. The most recent action, in September, was the announcement by the European Central Bank to buy government bonds on a conditional basis.

These actions have helped markets stabilize in recent months. However, policymakers need to take additional measures to restore confidence. If they do not, the result will be an acceleration in deleveraging, which raises the risk of a credit crunch as banks make fewer loans, and an ensuing economic recession, the IMF said.

“Further policy efforts are needed to gain lasting stability,” said José Viñals, financial counsellor and head of the IMF’s Monetary and Capital Markets Department, which produced the report. Viñals was a senior official at
Banco de España, during the Spanish property bubble.

Eurozone: restore confidence and reverse fragmentation

The IMF said delays in resolving the crisis have likely increased the amount of asset deleveraging by banks, which may further constrain the supply of bank credit and reinforce financial and economic fragmentation in the Eurozone.

Unless additional, decisive policy measures are taken urgently, the latest report says that mounting pressure on banks in Europe could result in asset shrinkage by as much as $2.8 tn to $4.5 tn through the end of 2013, with the largest burden of credit supply contraction falling on the Eurozone periphery.

The report was released in Tokyo in the run-up to the IMF’s Annual Meetings, the day after the 188-member institution issued its outlooks on global growth and government debts and deficits, which show growth has declined in the last six months, and countries’ efforts to control the debt overhang is taking longer to yield results.

“Commitment to a clear roadmap on a banking union and fiscal integration are needed to restore confidence, reverse the capital flight, and reintegrate the Eurozone,” said Viñals.

Countries need to do their part by implementing policies that promote growth and complete the clean-up of the banking sector, said Viñals.

Policy actions needed
 

To restore confidence, policymakers in the Eurozone need to swiftly complete the work they’ve begun, including:

  • Reduction of government debts and deficits in a way that supports growth;
  • Implementation of structural reforms to reduce external imbalances and promote growth; and
  • Clean-up of the banking sector, including recapitalizing or restructuring viable banks and resolving nonviable ones.

Policymakers need to complement these efforts with actions at the Eurozone level, according to the IMF. The European Central Bank should continue to ensure sufficient funding is provided to banks through their liquidity framework. More fundamentally, concrete progress toward a banking union in the Eurozone will help break the pernicious link between sovereigns and domestic banks.

Over the longer term, a successful banking union will require sufficient pooling of resources to provide a credible fiscal backstop to the bank resolution authority, and a joint deposit insurance fund.

Beyond the Eurozone

The report says the risks to financial stability are not confined to the Eurozone. Both Japan and the United States face significant fiscal challenges, which, if unaddressed, can have negative financial stability implications, according to the IMF.  Both countries require medium-term deficit reduction plans that protect growth and reassure financial markets. 

The IMF says the key lesson of the last few years is that imbalances need to be addressed well before markets start signaling credit concerns. If there is no credible medium-term plan, markets will force an adjustment over a compressed period, with adverse effects on growth and financial stability.

Thus far, emerging economies have adeptly navigated through global shocks, but need to guard against potential shockwaves from the Eurozone crisis, while managing slowing growth in their own economies. Many central and eastern European economies are vulnerable as a result of their high direct exposure to banks in the Eurozone and some similarities with weaknesses in the periphery. At the same time, the IMF says several economies in Asia and Latin America are also prone to risks associated with being in the later stages in a credit cycle. If spillovers were to intensify, rising domestic vulnerabilities and a reduction in policy space could pose increased challenges, the IMF said.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

Related Articles
403 Forbidden

Forbidden

Execute access is denied.


© Copyright 2011 by Finfacts.com

Top of Page

Global Economy
Latest Headlines
Russia sells reserves to support rouble
Switzerland bows to pressure; Tightens money-laundering rules
Opium poppy cultivation in Southeast Asia's 'Golden Triangle' hits new high in 2014
Oil prices over 40% below June highs
Global manufacturing expanded at slowest pace for 14 months in November
OECD says Eurozone risks stagnation if policy response too week
World Economy: Secular stagnation or a new normal
World trade is growing slower than economy for first time in 40 years
Global investors have a restored appetite for risk
G20 leaders back unmasking shell companies, automatic exchange of tax information
International Energy Agency expects continued weakness in oil prices
Nordic countries lead in English proficiency; Switzerland and France are laggards
Doing Business 2015: Singapore, New Zealand top rankings; Ireland moves up to 13th rank
Tax breaks for rich foreigners under fire in Switzerland
Oil prices plunge as global demand forecast cut
Global 2015 growth at 25-year average of 3.8% to 2007; Emerging markets subdued
US stocks in biggest one-day gain in 2014; Brent oil dips to 27-month low
Composite leading indicators point to weakening growth in the Eurozone
Global growth disappoints: IMF forecasts Irish growth in 2014 at 3.6%
US, UK most popular countries in global survey of 200,000+ job seekers
Global economic recovery is stalling; Too reliant on US economy
UBS whistleblower in France criticises banking omertà
IMF's Lagarde warns of a world stuck in a "mediocre" era of growth
World Economic Growth: The IMF says the time is right for an infrastructure push
Swiss Cabinet presents plans for corporate tax reform
IMF says uneven global recovery continues despite setbacks
Advanced economies question key aspects of globalisation's benefits
OECD proposes biggest reform of global business tax rules since 1920s
Estonia heads OECD tax competitiveness index; Ireland at 15, US at 32
Moderate global expansion underway says OECD
Global demand for crude oil slowed at "remarkable” pace in second quarter
Lagarde says world economy will grow "small 3% this year, between 3% and 3.5%"
Why can’t men make part-time work?
Switzerland to probe minister's links to offshore letter-box firms
World economy has not escaped growth doldrums says UN trade agency
World's biggest economies warned on poor quality jobs, stagnant pay
Global economic growth likely to remain at muted levels in coming months
Jobless crisis eases in developed world; Unemployment to decline slowly in 2015
Young and jobless? The solution isn’t always university
Most liveable cities are most boring; Dublin at joint 46th in 2014 ahead of London