Reply #37: Fix banks to avoid eurozone meltdown, IMF warns

[xchrom]

http://www.guardian.co.uk/business/2011/may/12/imf-eurozone-crisis-fix-banks

The International Monetary Fund has warned that the eurozone debt crisis could spread across the region unless European countries step up efforts to fix their banks.

In its latest economic outlook for Europe, the IMF said that the debt crisis in Greece, Portugal and Ireland could hit the wider eurozone by hitting bank lending and delivering a confidence shock, despite the rescue packages that are already in place.

"Financial linkages between countries with sovereign debt troubles and the rest of Europe could potentially pose more risk to the outlook," the IMF said on Thursday. "Restoring fiscal health, squarely addressing weak banks, and implementing structural reforms to restore competitiveness are key."

The Washington-based organisation stressed the importance of stress tests on banks, saying they are a key opportunity to force those found to be weak to raise new capital to bolster their finances. The European banking regulator is busy running a new round of stress tests and will publish the results in June. Tests conducted last year were regarded as too easy.