Monday, August 6, 2012

How Bad Could EU Crisis Get? IMF Attempts an Answer

by Ian Talley

Wall Street Journal

August 6, 2012

Seriously, how bad could it really get? No one knows what the full impact could be, but the International Monetary Fund has tried to guess.

Failure of euro-zone policy makers to tame their growing debt crisis would likely trigger a severe regional economic contraction, force a fire sale of financial-industry assets and trim the growth prospects of major world economies by several percentage points, the IMF says in its 2012 Spillovers Report.

“What stands between the current situation and the playing out of the scenario is the residual public confidence that policy makers will ultimately act to avert the spread of the crisis,” the IMF said in its 2012 Spillover Report.

The report quantifies the potential global effects from problems in the so-called systemic five economies: the euro area, the U.S., the U.K., Japan and China.

If EU authorities don’t act in time, the IMF said output in the euro area could be cut by five percentage points. Further, around two percentage points would be lopped off U.S. growth prospects, and output in China, Japan and the rest of the world would take a hit of around 0.5 to 2.5 percentage points.


Read the Report

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