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European debt crisis could flare up again: IMF | The International Monetary Fund has warned that the European debt crisis might flare up again at any time and send the global economy back into deep recession. The
Fund’s Chief Economist, Olivier Blanchard, claimed that there was currently ‘an
uneasy calm’ following tensions in financial markets at the end of 2011, the Gaurdian
reports. Referring to the risks that the country might leave the Euro, Blanchard
said that they are ‘doing everything possible that this does not happen.’ Blanchard
reasoned that there would be contagion risks if one country departed from the
single currency, and said this would be one of the circumstances in which the
firewalls would be needed that would affect the sovereign bonds of other nations,
he said. Addressing the press conference to mark the publication of the IMF's
flagship, World Economic Outlook, Blanchard said, “Strong policy measures were
taken, new governments came to power in Italy and Spain , the European Union adopted
a tough fiscal pact, and the European Central Bank injected badly needed liquidity.
Things have quieted down since, but an uneasy calm remains. At any time, things
could get bad again.” Global growth has been predicted to drop from 3.9% in 2011
to 3.5% but would rise to 4.1% in 2013. The Fund fears that there would be a more
pronounced drop in global growth as a result of the debt crisis in the eurozone.
Noting that Britain 's financial sector had been hard hit by the financial crisis,
the Fund said activity would be weak in early 2012 before recovering, while in
Europe , activity will continue to disappoint in the advanced economies, expanding
by only about 1.5% in 2012 and by 2% in 2013. The Fund also revealed that job
creation in economies in these economies will likely remain sluggish, and the
‘unemployed will need further income support and help with skills, retraining,
and job searching.’
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