IMF warns global economic slowdown entering ‘dangerous new phase’
Baku, September 26 (AZERTAC). An international team has decided it will return to Greece next week in hopes of reaching agreement on emergency loans needed to keep the country solvent and restore confidence in the financial health of the 17-nation euro zone.
Two days of talks among representatives from Greece, the European Union and the International Monetary Fund concluded Tuesday after registering “good progress,” the IMF said in a statement. Negotiations have centered on the budget measures Greece will take to ensure that it reduces government deficits as much as officials have promised.
The fund said it expected technical talks with Greece “to be completed soon,” with a full IMF mission to return to Athens early next week, presumably clearing the way for Greece to receive a new round of $11 billion in emergency loans next month.
The statement of progress came hours after the IMF warned that the global economy was in a “dangerous new phase” of slowing growth and eroding confidence — partly because of Europe’s inability to solve a set of problems arising from high public debt, a weakened financial system and slow economic growth.
Greece is a test case for whether the euro zone can meet the challenge. Nearly two years of efforts to address the country’s problems have run into repeated difficulties. These have included inaccurate IMF forecasts, slow follow-through by Greek officials to make promised changes and the inability of European leaders to convince global markets that euro-zone governments will pay their obligations.
The IMF’s latest forecast shows the Greek economy contracting by 5 percent this year, with the recession continuing through the end of 2012. That’s a significant change from July, when the agency projected a downturn of only 3.75 percent and said the Greek economy would expand slightly next year. Greece’s plans for cutting its government deficit were based on these overly optimistic projections.
A default by Greece could undermine confidence in Europe as a whole. This could drive up the borrowing costs of other countries, such as Italy and Spain, amid mounting risks of other defaults on the continent.
In its semiannual World Economic Outlook, the IMF said concerns about a possible Greek default are already affecting the world economy. Coupled with the economic slowdown in the United States and the impact of the Japanese earthquake, Europe’s debt crisis is putting the global recovery at risk, the IMF said.
The IMF’s report said that if European banks begin acknowledging possible losses on their holdings of Greek and other government bonds, it could tip the world into a new recession.
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