ET Desk
The eurozone's fiscal crises 'threaten' the area's nascent economic recovery and could lead to persistent unemployment, the IMF warned on Wednesday.
The recovery, driven mainly by foreign demand, 'is likely to be slowed in the near term by market tensions related to sovereign risks,' the International Monetary Fund said in a report.
'Over the medium term, the need for fiscal consolidation and structural rigidities will weigh on (the eurozone), leading to persistent unemployment and subdued investment,' the Washington-based fund said after annual consultations with the area's 16 member economies.
The IMF warning came ahead of European banking sector 'stress tests' - due to be published on today - designed to assess the capacity of 91 European lenders to withstand economic or financial crises.
Although the markets took a 'favourable view' of the stress tests, 'some uncertainty regarding the stringency of the tests is likely to remain,' the fund said in the report, calling for more transparency and an expansion of these assessments.
It wanted 'a more detailed disclosure' of outcomes together with remedial actions by weak institutions to mitigate capital shortfalls, and called for 'broadening the transparent use of stress tests beyond the largest institutions.'
But IMF spokesman Bill Murray later played down concerns about the stress tests, saying the report's criticisms were 'out of context and somewhat out of date.'
'The IMF welcomes the European move to publish the stress testing of the banks and expect (them) to address the questions that have been raised about transparency and help restore confidence in the financial system,' he said.
The markets have turned their attention to the health of banks after an explosion of public deficits and debts in the 16-nation eurozone weakened the single currency.
The debt drama forced European governments to bail out Greece and set up a 750-billion-euro (957-billion-dollar) safety net with the IMF for other countries to tap into if they get in trouble.