ATHENS—The head of the International Monetary Fund on Tuesday urged European countries to find a comprehensive solution to the region's debt crisis, faulting their approach to date as ad hoc and too slow.
Dominique Strauss-Kahn spoke as European finance ministers met in Brussels to debate enlarging the temporary fund for euro-zone members in need of emergency loans, as well as how to set up a permanent funding vehicle.
But those talks so far have been marred by sharp disagreements among various euro-zone governments over the details of future bailouts.
As European nations grapple with debt issues, the Federal Reserve is buying bonds. Video courtesy Fox News.
"My view is very simple—the euro zone must find a comprehensive solution to this problem," the IMF managing director said. "It is not a good approach that for every country we find a separate solution."
European leaders set up the €750 billion ($998.55 billion) European Financial Stability Facility in May, soon after they had put together a €110 billion financial rescue package to help Greece cope with its debt crisis, and have since extended a further €85 billion loan to Ireland.
The stability facility was created as a temporary measure to try to stem worries about the rising indebtedness of other euro-zone countries. Combined, the euro-zone countries have provided €440 billion to the total, the IMF has contributed €250 billion, with the remaining €60 billion coming from European Union contingency funds.
However, there have been disagreements over whether the size of the temporary fund should be expanded, while there are also disputes over how its successor facility should be financed and structured.
In his remarks, Mr. Strauss-Kahn likened Europe's expanding debt crisis to the financial turmoil that rocked the U.S. two years earlier. But he criticized Europe for its slow response and said the lessons learned from the American crisis called for a speedy and comprehensive solution.
"The institutional organs of the European system likely need some improvement so as to react more quickly," he said. "They were not created to deal with crisis, they were created for more peaceful times."
In the U.S., the effects of a widening crisis were first transmitted from bank to bank by a collapse of confidence in the interbank market.
In the past three months in Europe, investor fears that the EU and IMF may soon have to help Portugal and Spain have pressured the sovereign bonds of indebted euro-zone states and raised the cost of borrowing for those countries, further aggravating existing debt problems.
"Clearly the euro zone has a problem of high debt among some of its members. It is not a tremendous problem for the euro zone—I don't agree with the view with those who say that the future of the euro zone is at risk—but it is a problem and it must be addressed," Mr. Strauss-Kahn said. "And for it to be addressed effectively it must be addressed in a complete and comprehensive manner."
Mr. Strauss-Kahn was in Athens to discuss with Greek Prime Minister George Papandreou the country's continuing reform efforts as well as negotiate an extension to the period in which Greece must pay off its EU and IMF loans.
At a joint press conference, he said he was "impressed" with Greece's efforts to narrow its budget deficit, but said Greeks still faced a long road of difficult, structural reforms ahead.
Since May, Greece has narrowed its budget deficit from a record 15.4% of gross domestic product in 2009, to a projected 9.4% of GDP this year. For next year, it aims to reduce the deficit to 7.5% of GDP.
However, Greece still faces high borrowing costs on international markets, in part because of investor jitters over the country's ability to service a €70 billion-a-year in loan repayments in 2014 and 2015.
To ease some of those concerns, Mr. Strauss-Kahn publicly floated the idea of extending Greece's loan repayment schedule in October. And last month European finance ministers decided to consider extending the repayment period until 2024 from 2018, to bring it in line with Ireland's emergency loan.
"It is not an urgent issue, but we shouldn't wait too long about it," Mr. Strauss-Kahn said. "From our side, we are ready to do it. We'll see with our European partners how that should happen."
Late Tuesday, Greek public sector umbrella union ADEDY and the Communist-backed PAME union held protest rallies outside parliament to coincide with the IMF chief's visit.
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