According to a report that IMF chief Dominique
Strauss-Kahn will present to euro zone finance ministers at a meeting in
Brussels, the turmoil hitting countries in the currency area's southern
periphery constitutes a "severe downside risk" and more action from
member states is needed.
Together with the IMF, the EU set up a 750 billion euro
($1 trillion) rescue facility in May, but it now faces pressure to increase it
after last week's rescue of Ireland failed to ease fears of contagion to
Portugal, Spain and other high-deficit countries.
The IMF report, a copy of which was obtained by Reuters,
says there is a "strong case for increasing the resources available for
this safety net and making their use more flexible, including for the purpose
of providing more effective support to banking systems".
The report also says extraordinary ECB measures to combat
the crisis, including its bond purchasing program, should be
"expanded" until systemic uncertainties recede.
Government debt purchases by the ECB calmed markets
towards the end of last week, pushing down the borrowing costs of vulnerable
countries on the euro zone's southern periphery.
But ECB President Jean-Claude Trichet has made clear that
Europe's politicians should not count on the central bank alone to solve the
bloc's woes and urged them to take decisive new steps to prevent contagion.
Belgian Finance Minister Didier Reynders, speaking at a
conference in Brussels on Saturday, echoed the IMF in urging his euro partners
to think about boosting the rescue facility, which would be stretched if
Portugal and Spain required bailouts.
Chancellor Angela Merkel's government, worried German
taxpayers could rebel against paying for more euro zone bailouts, has said it
sees no reason to increase the facility.
Berlin would face intense pressure to drop its objections
if the 12-year-old currency bloc came under renewed attack on Monday from
investors spooked by economic and fiscal divergences within the euro zone
aggravated by the global financial crisis.
In a bid to ease market concerns about Spanish finances,
the government of Prime Minister Jose Luis Rodriguez Zapatero unveiled new
measures last week, saying it would bring forward pension reforms, raise
tobacco tax and cut wind power subsidies.
Its plans to sell off a 49 percent stake in state-owned
airports authority AENA provoked a 24-hour wildcat strike by air traffic
controllers that paralyzed airports and forced the government to declare a
state of emergency.
The disruption, which may cost the airline and tourism
sectors hundreds of millions of euros, underscored the difficult balancing act
euro zone governments face as they seek to appease markets without provoking a
public backlash that could end up denting investor confidence even more.
Portugal, widely seen as the next euro zone
"domino" at risk of a bailout, has resisted announcing new measures
on top of a tough 2011 budget approved last month.
Greece, struggling to meet tough deficit targets agreed
as part of its 110 billion-euro EU/IMF rescue, is also under pressure to do
more. In a Sunday newspaper interview, its central bank governor urged the
government to step up the pace of reform, saying Athens should be striving to
beat the fiscal goals set for it.
