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Euro zone heading for trouble without more convergence: IMF

Reuters

BRUSSELS (Reuters) - The economies of the 19 countries sharing the euro currency should converge more or they will suffer from repeated crises, the International Monetary Fund said in a regular assessment of the single currency area.

The view was presented in a regular assessment of the economy of the 19 countries sharing the euro, at a meeting of euro zone finance ministers on Thursday.

"Partly due to persistent competitiveness gaps, convergence in real per capita incomes has not occurred among the 12 initial countries to adopt the euro," the IMF said.

"Without more convergence, the monetary union is likely to suffer from bouts of instability," it said.

The Fund said euro zone economic recovery was firming, forecasting growth of about 1.6 percent this year, in 2018 and 2019, but its medium-term growth prospects were weak and buffers to cushion potential risks have grown smaller.

"Countries with high public debt will face difficulty coping with higher borrowing costs when monetary policy makers begin to reduce the extent of accommodation," the IMF warned.

"Political discord in advanced economies could presage some dramatic policy shifts, with elections in several euro area member states this year and some voters expressing scepticism about the merits of integration," it said.

"The process of disentangling the United Kingdom from the EU is still subject to many uncertainties, and will weigh on confidence," it said.

The Fund pointed to the need to boost domestic demand and investment in large net euro zone exporters like Germany and the Netherlands while Italy and Portugal should improve their productivity.

"More domestic demand in Germany and the Netherlands and other large net external creditor countries would help to reduce their excessively large current account surpluses, while net external debtor countries, such as Italy and Portugal, undertake further structural reforms to raise productivity.

(Reporting By Jan Strupczewski)

 

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