Having shown the eurozone a lot of latitude, the rest of the world is on the brink of losing patience. With a presidential election looming, and the eurozone debacle hindering a US recovery, America is particularly miffed.
The International Monetary Fund last week issued an “Article IV Consultation Report” which really was quite extraordinary. “The euro area crisis has reached a new and critical stage”, boomed the world’s leading financial watchdog. “The adverse links between sovereigns, banks, and the real economy are stronger than ever ... and financial markets in parts of the region remain under acute stress, raising questions about the viability of monetary union itself.”
In structural terms, the single currency “is at an uncomfortable and unsustainable half-way point”, observed the IMF. The euro area is “sufficiently integrated to allow escalating problems in one country to spill over to others, but lacks the economic flexibility or policy tools to deal with these spill-overs”.
The Washington-based IMF only makes important statements on the initiative of the US government. This statement, though, was made at the urging of China too. The IMF is now insisting on full-scale eurobonds – a genuine, loss-sharing banking union – and “sizeable” ECB money-printing on top of covert QE that has already happened.