IMF: Eurozone crisis poses global threat

LUXEMBOURG — The International Monetary Fund is warning that Europe's debt crisis could have "large global spillovers" if bolder action isn't taken.

The warning comes as the international crisis lender and the eurozone work on clearing the next euro12 billion installment of bailout loans to Greece. The money is needed to keep Greece from defaulting on its debts and spreading financial turmoil by deterring lending by bond markets to other governments.

The IMF says the eurozone needs to expand the powers of its bailout fund and avoid any impression that bailouts mean debt restructuring that would hurt bondholders.

It says in a statement that "failure to undertake decisive action could rapidly spread tensions to the core of the euro area and result in large global spillovers."

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The region's finance ministers agreed today to raise their guarantees for bailout loans given out from the current rescue fund to €780 billion ($1.1 trillion) from €440 billion, said Klaus Regling, who manages the Luxembourg-based fund. That will allow the fund to lend out a total of €440 billion, up from about €250 billion currently.

The European Financial Stability Facility, as the fund is known, requires significant over-guarantees to get a good credit rating and make the bonds it issues attractive to investors.

On top of that, the ministers also made an important tweak to their future rescue fund, which they hope will help already bailed out countries regain access to debt markets.

The so-called European Stability Mechanism, which will come into force in mid-2013, when the EFSF expires, will not have preferred creditor status when it helps countries that have already been bailed out, said Jean-Claude Juncker, the Luxembourg prime minister who also chairs the meetings of eurozone finance ministers.

Having preferred status means the fund would be repaid before any private creditors. That had been harshly criticized by many economists, who said it would deter banks and other investment funds from lending any money to already struggling countries.