IMF’s Chopra Says Euro Region Forecast to Grow 1.5% in 2011
The International Monetary Fund continues to stand by its forecast of 1.5% growth for the euro region in 2011, said Ajai Chopra, deputy director of the IMF’s European department.
While grappling with the debt crisis that already has required bailouts for Ireland and Greece, Europe has so far been able to implement new policies and maintain forward momentum, Chopra said.
“We have not marked down our forecast for the euro zone in any material way over the last year,” Chopra said at a panel in Washington. He said the lender would continue to monitor Europe’s banks and fiscal policies for signs of trouble.
“The downside risks are very elevated, and the downside risk comes primarily from the fact that the tensions that are in the periphery could spread to the core of Europe,” Chopra said.
Banks need to hold “a lot more capital” to return to health and promote a sounder economy, said Simon Johnson, a former chief economist at the IMF who is now a professor at MIT’s Sloan School of Management. He said the most recent international agreement on capital standards, known as Basel III, doesn’t go far enough and he called on the fund to push for tougher requirements.
“I think it is time now for the IMF to take a much clearer stand on this issue,” he said. “We need to have capital, much more capital, much more capital than is in Basel III.”
As it stands now, many European banks won’t be able to lend enough to help the economy as they retrench, he said. “Under- capitalized banks won’t lend after the crisis,” he said. “They are not going to be lending to anyone else, they are going to be cutting back, they are going to be dumping assets or just not making new loans.”
To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net;
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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