The International Monetary Fund said that global financial stability has improved over the last several months with the easing of the European debt crisis, but not so much as to ensure long-term economic growth.
An IMF senior official, Jose Vinals, said Wednesday in Washington that a new financial bailout for Greece and a European rescue fund for future financial emergencies have eased global financial concerns. But he said the gains are tenuous.
"These actions and policies have brought much-needed relief to financial markets since the peak of the crisis late last year," said Vinals. "But it is too soon to say that we have exited the crisis, because lasting stability is not yet ensured."
"Indeed," he added, "we have been reminded in recent weeks that sentiment can quickly shift and rekindle sovereign financing stress, leaving many sovereigns and banking systems caught in a vicious circle."
The fragile nature of the European economy was underscored in Italy, with the Italian government warning that the country's recession is deeper than predicted earlier. Rome said Italy's economy would shrink 1.2 percent this year and that the national budget would not be balanced until 2015, two years later than originally planned.
Vinals said European banks remain vulnerable to new financial pressures. He said their assets could shrink in the next two years by more than $2 trillion, leaving them with less money to lend and hindering the continent's economic growth.
In addition, Vinals said that the United States, with the world's largest economy, and Japan each need to forge a political consensus to cut deficit spending by their governments that threatens economic advances on a broader scale throughout the world.
"Unaddressed fiscal challenges in the United States and Japan represent latent risks to global stability," Vinals added. "Both countries have yet to forge a much-needed political consensus for medium-term deficit reductions. The United States is also grappling with high household debt burdens and an overhang of home foreclosures."
Vinals called on European leaders to create a "more and better Europe," with greater economic integration throughout the 17-nation euro currency bloc. He acknowledged that heightened European unity would be "politically difficult," but said that it was necessary to end the threat of financial instability.
