IMF urges EU to upgrade its recovery plan[fr][de] 

A report from the Washington-based agency, which has provided economic rescue funds for emerging market European countries hit hardest by the global financial crisis, stressed the need for Europe to adopt policies that helped west and east.

"Europe is facing the economic storm of a lifetime and it urgently needs to weatherproof its institutions," said Marek Belka, head of the IMF's European department, while presenting the report. 

The European Central Bank's interest rate cuts had probably gone about as far as was useful, said Belka, whose main point was to highlight the IMF's call for measures to restore confidence in the banking system, starting with stress tests. 

Meanwhile, EU sources told Reuters that the EU will stress test its banking system by September to determine its resilience to the economic downturn and find out if it is adequately capitalised. 

The stress tests will be carried out by national supervisors according to common guidelines and the methodology of the Committee of European Banking Supervisors (CEBS). But they will not single out banks that need more capital or to be made public, supervisors said, a step critics say would keep investors in the dark to some extent about potential problems. 

A US stress test of individual banks made public last week was widely seen as helping to give clarity to investors. 

"The decision was taken by EU finance ministers. They decided to ask the Committee of European Banking Supervisors to organise a stress test," one EU source familiar with the ministers' deliberations said.

"But it is not a stress test of individual institutions like the Americans are doing. It is more a highly aggregated stress test, which should show the degree of resilience of the overall EU banking sector," the source said. 

The IMF report also repeated the macroeconomic forecasts contained in the IMF's 22 April World Economic Outlook. It foresees deep recession in 2009 and flat to sub-zero growth for 2010 as a whole, despite a pickup that should take place as long as government measures are effective. 

It sees both advanced and emerging economies in deep contractions in 2009 but the emerging market region returning to growth for 2010 as a whole, while advanced economies still struggle, if much less so than this year. 

The IMF said fiscal stimulus should continue in 2010 and focus on infrastructure and direct transfers, rather than tax breaks and subsidies for companies and consumers. 

"Crisis measures and regulatory and supervisory actions have been unhelpfully diverse, especially in Europe's well-integrated financial sector," the IMF said. 

"But coordination is also at a premium when it comes to macroeconomic policies, where the sustainability of fiscal efforts needs to be secured and support for emerging Europe systematically stepped up." 

(EurActiv with Reuters.)