In its latest assessment of the global financial
sector, the International Monetary Fund, IMF says the risks to global financial
stability have increased and financial markets have been volatile as European
policymakers grapple with the ongoing crisis.
Faltering market confidence has led to capital
flight from countries on the ‘periphery’ to the core of the euro area.
This has
meant higher borrowing costs and a growing wedge between the economic and
financial ‘haves’ and ‘have-nots’, the IMF said on Wednesday, October 10, 2012.
The IMF’s “Global Financial
Stability Report” said European policymakers have taken a number
of important steps in recent months to help reverse the fragmentation of euro
area financial markets and strengthen the European Monetary Union.
However, it stressed policymakers need to take
additional measures to restore confidence. If they do not, the result will be
an acceleration in deleveraging, which raises the risk of a credit crunch as
banks make fewer loans, and an ensuing economic recession.
The most recent action, in September, was the
announcement by the European Central Bank to buy government bonds on a
conditional basis, which it said have helped markets stabilize.
“Further policy efforts are needed to gain lasting
stability,” suggest José Viñals, Financial Counsellor and head of the IMF’s
Monetary and Capital Markets Department, which produced the report.
“Commitment to a clear roadmap on a banking union
and fiscal integration are needed to restore confidence, reverse the capital flight,
and reintegrate the euro area,” said Mr. Viñals. “Countries need to do their
part by implementing policies that promote growth and complete the clean-up of
the banking sector.”
Policy actions needed
To restore confidence, the IMF exhorts that
policymakers in the euro zone need to swiftly complete the work they’ve begun,
including: Reduction of government debts and deficits in a way that supports
growth; Implementation of structural reforms to reduce external imbalances and
promote growth; and Clean-up of the banking sector, including recapitalizing or
restructuring viable banks and resolving nonviable ones.
Beyond euro zone
The risks to financial stability are not confined
to the euro area, the IMF observes.
“Both Japan and the United States face
significant fiscal challenges, which, if unaddressed, can have negative
financial stability implications,” it said. “Both countries require medium-term
deficit reduction plans that protect growth and reassure financial markets.”
According to the report
released in Tokyo, Japan in the run-up to the IMF’s Annual
Meetings “the key lesson of the last few years is that imbalances
need to be addressed well before markets start signaling credit concerns.”
If there is no credible medium-term plan, markets
will force an adjustment over a compressed period, with adverse effects on
growth and financial stability, noted the report which comes the day after the
188-member institution issued its outlooks on global growth
and government debts
and deficits.
That outlook
show growth has declined in the last six months, and countries’ efforts to
control the debt overhang is taking longer to yield results.
Meanwhile, Wednesday’s global stability report
indicated that emerging economies have adeptly navigated through global
shocks, but need to guard against potential shockwaves from the euro area
crisis, while managing slowing growth in their own economies.
“Many central and eastern European economies are
vulnerable as a result of their high direct exposure to banks in the euro area
and some similarities with weaknesses in the periphery,” the Global Financial
Stability Report revealed.
At the same time, several economies in Asia and
Latin America are also prone to risks associated with being in the later stages
in a credit cycle.
If spillovers were to intensify, rising domestic
vulnerabilities and a reduction in policy space could pose increased
challenges, the IMF, a leading multinational financial creditor, concluded.
Written by
Modou S. Joof
Follow on Twitter: @thenorthbankeve
Follow on Facebook: The-North-Bank-Evening-Standard
This blog is very helpful for all student who read online. And want Corporate Finance Homework Help.Thanks for you all students help. And keep continue to helpful post.
ReplyDeleteIn recent times, online services have made it more accessible and convenient for the students to perform better in their tight schedule. Online teaching is same as the traditional tutorials, except the fact, it uses technology to convey the knowledge to the students.
ReplyDeleteAssignment Help online
Java Assignment help