The International Monetary Fund (IMF) has warned of a global economic “crisis” if the eurozone fails to reach a new deal on its debt restructuring, saying it will take a “significant” hit to global growth if it does not agree on the terms.
The IMF’s top economic official said the eurozone has to “rebalance” the economy before the next crisis-hit year.
The IMF also warned the euro area could face a “cascade of contagion” if it fails to meet its financial obligations in time.
“Austerity and not an economy downturn” would be the message to Europe’s leaders and investors, the IMF said in a statement on Wednesday.
“A global crisis will be inevitable if there is no progress at the next meeting of the EU leaders,” the IMF’s Christine Lagarde said in the statement.
Lagarde warned that the eurozone’s “weak position” is already having a negative impact on the rest of the world.
“Europe will have to rebalance its economy before 2019, which is when the next downturn will begin, with the consequences for growth being significant, and for the rest in the world,” she said.
In her latest comments, Lagarde also called on the European Commission to “immediately” release the terms of any deal reached between eurozone leaders and the ECB.
The ECB has been negotiating with the eurozone leaders since January, following months of brinkmanship and financial instability.
The euro area’s leaders have failed to reach an agreement on the way forward since the ECB last month put forward its own plan for reform, which included a plan to cut debt to a new record low of just under €70bn, down from €80bn in July.
The eurozone’s governing council has also said that it wants to meet the new deal in September.
But the leaders have said that they have no plans to renegotiate their agreement and they will stick to the plan for an agreement to be signed next month.
The European Central Bank, meanwhile, has warned that it would be willing to buy the debt of countries that fail to meet their financial obligations.
The bank said it would consider a request from Greece, which it said had failed to pay back €1.8bn it had lent it, if it received a proposal to pay that debt back.