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IMF chief calls for eurobonds to combat crisis

Berlin : International Monetary Fund (IMF) chief Christine Lagarde called for a bigger rescue fund in the 17-member eurozone and the creation of the eurobonds in order to address the single currency bloc’s debt crisis.

Speaking during a conference here in Berlin, Lagarde said it is important to set up an even larger firewall, without which “countries like Italy and Spain that are fundamentally able to repay their debts could be forced into a solvency crisis by abnormal financing costs”, reported Xinhua.

The IMF head gave the creation of the long-disputed “eurobonds” an extra push, saying it was a concrete step to realize the so-called risk sharing.

“Political agreement on a joint bond to underpin risk sharing would help convince markets of the future viability of European economic and monetary union,” Lagarde said.

The eurobonds, favoured by Paris and the European Commission but overtly opposed by Berlin, has been a controversial topic among EU leaders.

“We saw many false starts and half measures in 2011,” Lagarde said as she commented past EU measures to curb the escalating crisis, “policymakers let an old wound fester, and in doing so made the situation worse”.

Looking ahead into the new year, the IMF chief affirmed that “2012 must be a year of healing”, and stressed that concrete measures to boost greater eurozone integration and stronger economic growth were key to address the debt crisis that plagued the 17-member bloc for more than two years.

“Monetary union needs to be supported by financial integration in the form of unified supervision, a single bank resolution authority with a common backstop, and a single deposit insurance fund,” Lagarde said.

The eurozone had to to make greater efforts toward striking further integration on fiscal policy-making, as “it is not tenable for 17 completely independent fiscal policies to sit alongside one monetary policy”, she said.

“In a sense, the crisis is a crisis of incomplete integration,” Lagarde said.

EU leaders are scheduled to meet in Brussels at the end of the month to deliberate details of a fiscal compact which enshrines tighter budget discipline.

Lagarde also called on European leaders to shift their focus on tougher spending austerity to boosting economic growth.

“On fiscal policy, budgetary cuts will only add to recessionary pressures,” she said.

The IMF head also called for an additional $500 billion for the IMF as it seeks to keep afloat countries battered by the crisis.

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