The managing director of Institute of International Finance, Charles Dallara
A major global banking group said Monday that excessive spending cuts across the euro area are dragging the region\'s economy down and called for more spending by countries
The Institute of International Finance, which played a central role in the restructuring of Greece\'s debt, also assailed a eurozone firewall -- designed to stop market contagion -- as still inadequate and called for it to be expanded as soon as possible.
\"The emphasis so far on fiscal austerity, while to a degree necessary for the countries facing market funding difficulties, is excessive when carried out across the board,\" IIF chief Charles Dallara said in a letter addressed to the International Monetary Fund and the World Bank.
The tighter spending by eurozone governments \"has already contributed to a steep contraction in domestic demand in the euro area as a whole,\" Dallara said.
\"It is important to move beyond just fiscal discipline, shift the policy focus from nominal to structural budget balances,\" he said.
Instead, Dallara said, government fiscal policies should be differentiated between weaker eurozone members and those with surpluses and fiscal flexibility \"so as to avoid the risk of an austerity overload.\"
Dallara\'s letter was addressed to the International Monetary and Financial Committee and the Development Committee of the IMF and World Bank ahead of their yearly Spring Meetings on April 20-22.
The IMF has pushed strongly for tough austerity programs in the weakest euro area countries like Greece and Spain, but has also warned that choking off spending across the eurozone could choke off growth.
The IIF, which represents some 450 major financial institutions worldwide, assailed the eurozone\'s fiscal compact, which sets tough budget standards for all governments, as \"somewhat narrowly focused on promoting the implementation of rather inflexible fiscal consolidation objectives.\"
It also called the agreement by European finance ministers late last month on a 800 billion euro (US$1 trillion) emergency fund to protect against market panic as \"disappointing\", noting that 300 billion euros of it was already committed.
\"The euro area needs to increase in the period immediately ahead the resources of its firewall and enhance the flexibility and timeliness of the deployment of these