Economic crisis not over yet, IMF chief warns Europe

International Monetary Fund (IMF) Managing Director Christine Lagarde. (AFP/Woohae Cho)

BRUSSELS: The head of the International Monetary Fund warned Europe on Tuesday that it was too early to declare victory over its crippling economic crisis and urged fresh efforts to enact much-needed reforms.

Speaking in the European Parliament, Christine Lagarde noted the Europe Union had made some progress in tackling the crisis that has brought the economy to its knees but stressed: "Looking past the headlines, there are clearly signs that not all is well."

"Can we actually argue that the crisis is really well behind us when, at the same time, 12 per cent of the labour force is without a job?" she asked.

"We don't think it's appropriate to claim victory and to assume that the crisis is over. More needs to be done and more focus needs to be applied," said the IMF chief.

She called on the European Central Bank, which surprisingly cut interest rates in November, to keep its lending rates low and to act against further declines in inflation.

A Banking Union, which finance ministers were thrashing out just metres away in a separate building, "remains a priority," she said of the plans for a new bank regulatory system.

"It is critical that the flow of credit on reasonable terms to businesses and households be restored."

Lagarde also urged Europeans to slash debt levels and implement reforms in the labour market to make economies more competitive.

Looking back at the beginning of the crisis, she acknowledged it was "remarkable" how much progress had been made in Europe and said that the 28-nation block was "on the right track."

It was "no accident" that growth figures in the bloc were looking up and unemployment levels were dropping, she said.

Nevertheless, she emphasised: "There can be no letting up on reforms and it is not because the euro area will grow at one per cent that we should just slow down, give up and reduce the pace of reforms.

"Reforms have to be continued ... because they will lead to something that is better."