The International Monetary Fund warned Thursday that the Eurozone crisis has reached a "critical stage" and expressed fears for the future of the common currency unless the 17 nations that use it swiftly integrate their banking and fiscal policies.
"Despite extraordinary policy actions, bank and sovereign markets in many parts of the euro area remain under acute stress, raising questions about the viability of the monetary union itself," the IMF said in its report following a mission to assess the currency crisis.
The euro's value has plunged against the U.S. dollar and other currencies as recession-racked member states have become mired in debt and needed bailouts from international financial institutions to avert defaults.
The recent elections in Greece threw into question whether that Eurozone member, which has already been given $300 billion in bailout funds, would remain committed to the common currency and to paying its debts.
Market turmoil over the Greek debate about staying in the Eurozone has caused borrowing rates to soar for countries such as Spain and Italy, which must pay high interest rates on bonds sold to cover debt payments. Even after Spain sought help from European neighbors for its insolvent banks, and Greek voters expressed their support for staying in the Eurozone, the interest on Spain's 10-year notes has hit record highs, exceeding the 7% level that pushed Greece, Portugal and Ireland to ask for bailouts.
"The financial and economic environment continues to deteriorate," the IMF warned in its report from the institution's Washington headquarters. "Investors are withholding funding from member states most in need, moving capital to safe havens and driving risk premiums to new records."
The 188-nation IMF, with the United States as its largest and most influential member, urged the Eurozone to adopt pro-growth policies, noting that without more income, the indebted states will be unable to pay down their debts and unemployment will worsen.
"Lower growth and heightened market stress are compounding the difficulties in reducing debt burdens. The risk of stagnation and long-term damage to potential growth will increase as unemployed workers lose skills and new workers find it difficult to join the active labor force," the IMF said.
Important steps have been taken by the European Central Bank, the IMF noted, "but the crisis now calls for a stronger and more collective effort."
The Eurozone must create a banking union as an immediate first step "toward a robust and complete monetary union" that would restore faith in the euro's future, the IMF said.
European Union leaders gather next week for a summit in Brussels and pressure is likely to be exerted on German Chancellor Angela Merkel, whose exclusive focus on austerity measures to pare debt in other member countries has been criticized.
-- Carol J. Williams in Los Angeles
Photo: A pedestrian passes an advertising board outside a Western Union money transfer store in Athens on Thursday. Credit: Chris Ratcliffe/Bloomberg