20 Oct 2010

IMF / EUROPE ECONOMIC OUTLOOK

The IMF predicts a growth of 2¼ percent for Europe in 2010 saying that while the recovery remains sluggish and uneven, the growth represents a turnaround for the region. IMF

Posted at: October 20, 2010 4:00 am

Duration: 02:48

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STORY: IMF / EUROPE ECONOMIC OUTLOOK
TRT: 2:48
SOURCE: IMF
RESTRICTIONS: NONE

DATELINE: OCTOBER 2010, WASHINGTON DC

FILE – WASHINGTON DC

1. Wide shot, exterior IMF

OCTOBER 2010, WASHINGTON DC

2. Med shot, Ajai Chopra working at desk
3. SOUNDBITE (English) Ajai Chopra, Acting Director, European Department, IMF:
"What's encouraging is that the recovery in Europe is continuing and this is happening despite the trouble in the sovereign bond markets. We are now projecting growth of 2 ¼ percent in both 2010 and 2011. The fact that we have the same growth forecast for both years itself suggests that there's not a lot of momentum behind this recovery."

FILE – WARSAW, POLAND

4. Various shot, shopping mall

OCTOBER 2010, WASHINGTON DC

5. SOUNDBITE (English) Ajai Chopra, Acting Director, European Department, IMF:
"For the financial sector we see two major priorities.  The first is to identify and tackle the vulnerable institutions and to do this quickly. The EU- wide stress tests, and also stress tests that have been done by national authorities, provide a good foundation on which to build.  These should be used to identify the institutions that need to be recapitalized, restructured, or resolved. The second priority is to move forward on the regularity reform side and to finalize this.  It's inevitable that banks will need to hold more capital and more liquidity to make them safer.  We also need to remember that Europe has a very integrated financial market.  So this also makes it important for supervisors across borders to cooperate.  So we need to now move forward on these initiatives that are already in train, get regulatory clarity, and implement the new regime."

FILE – BERLIN, GERMANY

6. Various shots, banks

OCTOBER 2010, WASHINGTON DC

7. SOUNDBITE (English) Ajai Chopra, Acting Director, European Department, IMF:
"It's clear that the great recession has left deep scars in public finances everywhere.  In fact, for some countries debt and deficits have reached levels that are not being tolerated by markets.  It's essential, therefore, for countries to develop plans now and for the next few years to demonstrate that debt is on a firmly downward path and also that fiscal sustainability is assured.  Now this does not mean that there's a one-size-fits-all fiscal policy for all countries.  In fact, fiscal policy should be tailored to countries' specific circumstances."

FILE – BUCHAREST, ROMANIA

8. Various shots, skyline and Parliament

FILE – WASHINGTON DC

9. Wide shot, exterior IMF

STORYLINE:

The IMF is predicting growth of 2¼ percent for Europe in 2010, according to the IMF's latest Regional Economic Outlook. While the recovery remains sluggish and uneven, it represents a turnaround for Europe, which was gripped by fears over sovereign solvency in May 2010 that threatened monetary union.

"What's encouraging is that the recovery in Europe is continuing and this is happening despite the trouble in the sovereign bond markets.  We are now projecting growth of 2 ¼ percent in both 2010 and 2011. The fact that we have the same growth forecast for both years itself suggests that there's not a lot of momentum behind this recovery," said Ajai Chopra, Acting Director of the IMF's European Department.

Emerging Europe is climbing out of its deepest post-transition recession and is projected to grow faster than advanced Europe, the report says.

Six months ago, concerns about economic prospects in Europe ran high as strains in Greek sovereign bond markets started to spread to other countries and sectors. Amid tumbling equity markets and a sharply depreciating Euro, doomsayers predicted a breakup of the Euro area and a relapse of the global economy into recession.

The recovery has withstood the turmoil in financial markets thanks in large measure to a forceful policy response, including the establishment of the European Stabilization Mechanism to backstop EU governments with financing problems, the report points out. Europe's economy is projected to expand by 2¼ percent this year and next. However, the recovery is bound to remain modest and dependent on the pull of the global economy.

Policymakers face difficult choices as they tackle vulnerabilities while nursing a fledging economic recovery. Fiscal policy needs to strike a delicate balance between supporting demand through deficits on the one hand, and addressing unsustainable debt dynamics and eroding market acceptance on the other.

"For the financial sector we see two major priorities. The first is to identify and tackle the vulnerable institutions and to do this quickly. The EU- wide stress tests, and also stress tests that have been done by national authorities, provide a good foundation on which to build.  These should be used to identify the institutions that need to be recapitalized, restructured, or resolved.

The second priority is to move forward on the regularity reform side and to finalize this.  It's inevitable that banks will need to hold more capital and more liquidity to make them safer.  We also need to remember that Europe has a very integrated financial market.  So this also makes it important for supervisors across borders to cooperate.  So we need to now move forward on these initiatives that are already in train, get regulatory clarity, and implement the new regime," Chopra said.

Financial sector reform faces the dual task of reviving credit growth and strengthening a still vulnerable system. Implementing structural reforms to facilitate the necessary adjustment in the real economy will require strong political will during a time of high unemployment and uncertain economic prospects. A strengthened governance framework would help build much needed confidence.

"It's clear that the great recession has left deep scars in public finances everywhere.  In fact, for some countries debt and deficits have reached levels that are not being tolerated by markets.  It's essential, therefore, for countries to develop plans now and for the next few years to demonstrate that debt is on a firmly downward path and also that fiscal sustainability is assured.  Now this does not mean that there's a one-size-fits-all fiscal policy for all countries.  In fact, fiscal policy should be tailored to countries' specific circumstances," Chopra said.