Europe dogged by criticism over financial crisis handling
The International Monetary Fund fired off the latest round of criticism, lamenting in a report that coordination between EU countries on the financial crisis had been "far from optimal."
Brussels -- Seven months into the worst financial crisis in generations, Europe is still coming under fire both from at home and internationally for failing to mount a tougher and more coordinated response.
The International Monetary Fund (IMF) fired off the latest round of criticism, lamenting on Wednesday in a report that coordination between EU countries on the financial crisis had been "far from optimal."
"Stanching the much broader problems that are building in Europe's financial systems -- notably those related to deteriorating prospects for loan books, particularly for exposures to emerging Europe -- requires a far more forceful and coordinated financial policy response to the crisis," it said.
Forecasting that the eurozone economy would contract 4.2 percent this year, the IMF warned that the situation could turn out even worse, especially if big cross-border banks ran into serious trouble, triggering more sector-wide turmoil.
It also urged the EU to beef up emergency lending measures available to countries that become incapable of meeting their foreign financial obligations in order to ensure they do not "drag down others."
EU governments have already had to double an emergency lending fund twice over the last few months to 50 billion euros, as the credit line proved inadequate to support several struggling countries at the same time.
Looking further ahead, the IMF said that Europe needed more coordination and integration between the various regulatory bodies overseeing the financial sector, welcoming tentative steps under way.
"Ultimately, what is needed is an institutional structure for regulation and supervision that is firmly grounded on the principle of joint responsibility and accountability for financial stability, including the sharing of crisis-related financial burdens," the IMF said.
"Otherwise, deleterious national reflexes will continue to prevail during crises," it added.
Europe appeared to be caught largely off guard after the global credit crunch took a turn for the worse in September following the dramatic collapse of US investment bank Lehman Brothers.
While seeking a leading global role against the crisis, EU governments scrambled in October and November to cobble together a range of measures to calm markets such as hiking bank deposit guarantees and underwriting interbank lending.
However, much of the measures were hastily agreed among big EU countries, with smaller countries left playing second fiddle much to the irritation of countries such as Belgium.
"The crisis has exposed Europe's weakness. We were waiting for a energetic response and more leadership, but that did not happen. On the contrary, Europe has faltered," Belgian Foreign Minister Karel De Gucht said on Monday.
Meanwhile, the European Commission has repeatedly come under fire for holding up approval of various national plans to help struggling banks.
In rare public criticism, the head of the German central bank accused the commission of ordering European banks to scale back their operations to their home markets as a condition for receiving state aid, which Brussels rebuffed sharply.
"For a European bank, foreign subsidiaries are non-EU subsidiaries," said Bundesbank president Axel Weber in an interview with the Financial Times.
"I find it surprising -- to say the least -- that European institutions view cross-border operations within the EU as foreign operations. For me, the euro area is the domestic economy," he added.
Commission spokesman Jonathan Todd fired back that "it is not helpful for people to make misguided public comments concerning the commission's approach for state aid to banks without first discussing the matter with the European Commission.
"If Axel Weber had done so he would have known that the commission is actively defending the single market and working to ensure a recovery from the crisis," he added.