The measures on spreads and banks established by the Eurozone at the end of June are positive, but now we need to speed up the banking union. This is the judgment of the IMF contained in the report on Euroland. According to the international institution, the monetary union is "at an inconvenient and unsustainable halfway point", for which we need "a unified declaration of support for all these steps by governments with a clear timetable for decisions" . Objective: "stop the fall of trust".
The Monetary Fund also believes that the room for maneuver has not run out for an intervention by the ECB, which should further reduce interest rates. The report is dated July 3 and the ECB brought the reference rate to 0,75% two days later. But the IMF also claims that the ECB can provide further defenses against the escalation of the crisis, starting with a transparent "quantitative easing" program including "strong" purchases of sovereign debt.
The financial and debt crisis in the euro area "has intensified" and "the vicious circle that has arisen between the weakening of banks, public debt and the real economy has worsened, bringing public debt refinancing costs and risk premiums to record levels". Furthermore, "the serious pressures on the budgets of countries and of many banks raise doubts about the very survival of the euro area".
RECORD UNEMPLOYMENT AT 11,3% IN 2013
The International Monetary Fund expects new increases in unemployment to historic highs: in 2012 it will rise to 11,1% and in 2013 to 11,3%. According to the Washington institution, in 2012 the overall GDP of the euro area will mark a decrease of 0,3%, while in 2013 it will recover by 0,7%.
CAPITAL FLIGHT, ITALY AND SPAIN AFFECTED
In the euro area we are witnessing a flight of capital from the countries of the South to those of the North, warns the International Monetary Fund in the editorial of its report on the currency union. “Investors are abandoning the most needy countries, moving their capital north and out towards assets deemed safer” and this has led to a continuous divergent trend in the availability of liquidity in the economies.
In detail, the institution cites the cases of Italy and Spain as examples: "At the end of 2011, the share of public debt held by non-residents was respectively 34% and 33% in Italy and Spain, whereas at the end of 2009 it was 44% and 48%”.
WITH SPENDING REVIEW ITALIA REDUCE TAX PRESSURE
The Monetary Fund therefore recommends that Italy reduce taxes, financed through cuts in public spending in order to "better distribute the costs of rectifying the accounts and help growth". Furthermore, in the summary sheet on the recommendations made to the various countries included in the report, the IMF recalls that it had suggested to Italy to have a structural prudential budget surplus of 1% of GDP.
Finally, strengthening of banks and simulations of resistance on institutions that did not participate in the European stress tests are needed. The IMF also recommends speeding up reforms on services, continuing reforms on the labor market and reducing the presence of the state in the economy.
