IMF says debt-hit Europe must 'restore confidence'

Europe must do more to tackle a fiscal crisis that is heaping extra pressure on an already-strained global financial system, the International Monetary Fund warned in a new report.

Europe must do more to tackle a fiscal crisis that is heaping extra pressure on an already-strained global financial system, the International Monetary Fund warned in a new report Wednesday.

Protesters take part in a demonstration in Valladolid against education cuts by the Spanish government.

Despite some new policy measures, among them a bond-buying programme aimed at helping debt-riddled nations including Spain and Italy, the risks of a credit crunch and recession loomed, the IMF said.

"(European) policymakers need to take additional measures to restore confidence," said the IMF's Global Financial Stability Report.

"If they do not, the result will be an acceleration in deleveraging, which raises the risk of a credit crunch as banks make fewer loans, and an ensuing economic recession," it added.

It also warned that a "further deterioration in the euro area crisis is the biggest risk to global financial stability, but rising imbalances elsewhere are also a cause for concern".

The United States and Japan also face "significant" fiscal hurdles, which, if not tackled, could also destabilise the world financial system, the report said.

"Both countries require medium-term deficit reduction plans that protect growth and reassure financial markets," it said.