MercoPress. South Atlantic News Agency

IMF: Euro Countries Must Focus on Cutting Deficits; Denies “Blanket Commitment”

Stern warning from John Lipsky, second man in the IMF

European countries saddled with debt should focus on cutting deficits in the wake of policy makers' unprecedented efforts to contain the region's sovereign-debt crisis, said John Lipsky from the International Monetary Fund.

The rescue package “is an important step” said John Lipsky in an interview with Bloomberg Television. “Now let's see what happens in other countries that need to undertake adjustment programs”.

Lipsky spoke after the Euro surrendered gains made after the European Union's announcement of a rescue package of almost 1 trillion USD to the region's most indebted nations. Investors are concerned the measures won't be enough to prevent the crisis from spreading to countries including Spain and Portugal, which are also tackling growing deficits.

Spain and Portugal have pledged to pare spending as part of the European Union loan package agreement. Deficits are set to reach 8.5% of GDP in Portugal and 9.8% in Spain this year, above the euro region's 3% limit. Both countries pledged “significant” additional budget cuts in 2010 and 2011, to be outlined this month.

Lipsky told reporters the International Monetary Fund (IMF) hasn't made a “blanket commitment” to contribute to the European rescue plan, though it has “ample funds” to take part. He applauded efforts by the region's policy makers, which include plans for the European Central Bank to purchase debt.

“This was a very big step by the ECB (European Central Bank) in support, in conjunction with the actions taken by the Eurozone countries,” Lipsky said in the interview from Washington. “No one's saying that this is easy, but it would be simply unrealistic to say nothing important has happened.”

The IMF board of directors discussed the European aid mechanism Monday, Lipsky said. US authorities have been “very supportive and encouraging,” he said. He said the “IMF isn't in talks for aid with any individual country sharing the Euro”.