BRUSSELS, July 18: The eurozone is in “critical” danger but can restore credibility with speedy moves towards a banking union, some form of pooled debt and if the European Central Bank pumps in more cash, the IMF said on Wednesday.

The European Central Bank should use more of its special measures to buy government debt and fund banks, the IMF said, all steps that EU paymaster Germany sees as major initiatives only possible in return for a much tighter political and fiscal union.In a hard-hitting review of policies for the euro area, the IMF warned: “The euro area crisis has reached a new and critical stage.”

“Despite major policy actions, financial markets in parts of the region remain under acute stress, raising questions about the viability of the monetary union itself.”

A worsening of the crisis would have a big impact on neighbouring European countries “and the rest of the world.”

It warned: “A determined move toward a more complete union is needed now.”

On growth, the International Monetary Fund said the “stark” truth was that eurozone countries had lagged the best performers for 50 years.

The euro is slightly over-valued by zero to 5.0 per cent, the IMF estimated, but some countries in crisis needed a much bigger adjustment, of 5.0-10pc for Italy and 10-15 per cent for Spain.

Determined programmes for structural reforms to raise competitiveness were vital, the IMF said, warning also of a risk of deflation and suggesting that strong countries in northern Europe could allow wages and inflation to rise.—AFP