MercoPress. South Atlantic News Agency

IMF governing panel calls for more action from Euro zone to prevent recession

Singapore Finance Minister Tharman Shanmugaratnam, head of IMF panel

Europe was pressed by other world powers to take strong measures to fix its debt-heavy economy and restore growth to a level that would lift the cloud hanging over the fragile global recovery.

A day after top economies agreed to lend more money to the International Monetary Fund to help contain Europe's debt crisis, the IMF governing panel said the Euro area must cut government debt burdens, make bold economic reforms and stabilize its financial systems to restore growth.

Debt problems will resurface unless these steps are taken, the head of the IMF governing panel, Singapore Finance Minister Tharman Shanmugaratnam, warned.

“What was really critical in all our minds was to get back to normal growth over the medium term and preferably sooner rather than later, in other words within two to three years,” he told a news conference.

“If we don't get back to normal growth, if we don't get GDP back to its potential levels, then fiscal sustainability is not possible either,” he warned.

In its policy statement the IMF panel warned against overly harsh budget cuts that could have negative consequences.

“In advanced economies further actions are needed in many countries to achieve credible fiscal consolidation and government debt reduction, while avoiding excessively contraction fiscal policies,” it said.

The United States also piled on pressure.

“The success of the next phase of the crisis response will hinge on Europe's willingness and ability, together with the European Central Bank to apply its tools ... flexibly and aggressively to support countries as they implement reforms,” US Treasury Secretary Timothy Geithner told the IMF steering committee.

The committee called upon central banks in advanced economies to retain their accommodative monetary policies, as long as growth remains weak and inflationary expectations under control.

ECB officials resisted pressure at the meetings in Washington to do more to help the euro zone economy, which is at risk of a recession. The IMF last week said the ECB should cut interest rates further from their current level of 1%.