The International Monetary Fund has said the euro region’s debt crisis is the biggest threat to global financial stability and has warned European policymakers they need to show more urgency in strengthening fiscal ties and economic stability. “Despite many important steps already taken by policymakers, this agenda remains critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline,” the IMF said in its Global Financial Stability Report on Wednesday. Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now. The world body’s assessment was something of a contradiction to Europe’s upbeat mood after a European Central Bank decided to buy bonds of countries that accept an assistance program. ECB president Mario Draghi said the program, set to be launched soon, offered a “fully effective backstop” and was helping calm economic fears, according to Reuters. The IMF was starker in its remarks, insisting confidence in the global financial system was “very fragile” and that the global economic slowdown was actually worsening. The IMF has also cut its growth forecasts for the second time since April and warned U.S. and European policymakers to take action soon. According to the IMF, banks in Europe were likely to get rid of $2.8 trillion in assets over two years to cut their risk exposure, an increase of $200 billion from a prediction six months ago. That would likely result in lowering credit supply in the region by 9 percent by the end of 2013. Such a scenario would prove incredibly costly, Jose Vinals, the director of the IMF’s monetary and capital markets department and who largely wrote the stability report, told Reuters in an interview. “The more time that goes by without a complete solution, the more are the eventual costs for everybody of resolving the crisis,” Vinals said. Vinals added that the U.S. and Japan must take lessons from Europe’s troubles, asking them to realize that delaying necessary policy adjustments leads to “harsher economic outcomes” and that any slight improvement in market conditions right now was only offering a “false sense of security.” While the IMF acknowledged that the ECB’s bond buying agreement had restored some market confidence, it added that private investors still lacked faith in at least peripheral European markets. The world body also warned that risks from the euro zone could spill into emerging markets, which are most vulnerable to financial shocks.
