Wall Street Journal
January 26, 2011
European officials need to expand the region's financial rescue fund and subject their banks to more rigorous stress tests to quell a key threat to the global economic recovery, the International Monetary Fund said Tuesday.
A pair of reports released by the fund suggested its biggest area of concern remains Europe, where fears of a sovereign debt crisis and questions about the financial health of some of the region's banks have led to increasing market turbulence. The financial rescues of Greece and Ireland and the potential for other countries to need aid continue to hurt market confidence in the region, the IMF said.
The fund warned that absent a series of "comprehensive, rapid, and decisive policy actions," market fears could spread to the stronger European economies and to others around the globe The IMF expressed concern about the growing linkage between bank and government debt woes in some European countries, as doubts about banks' financial condition dovetail with questions about governments' abilities to service their debts, which in turn heighten fears about rising funding costs, in a worsening cycle.