“Risk to the euro area’s stability arising from country-specific shocks, risks that were so violently displayed in the euro zone crisis, remain very serious,” the IMF’s Poul Thomsen said in a speech at the London School of Economics.
He added that some countries with still struggling with low potential growth rates and high structural unemployment due to a lack of reforms, and had not taken sufficient advantage of several years of relatively robust growth to reduce debt.
“In some cases, fiscal policy for the last couple of years has actually been pro-cyclical,” Thomsen said.
“Therefore they are left with even less fiscal space to counter shocks that are country-specific, with a correspondingly higher risk in the future of a shock that would force them into pro-cyclical tightening just when things start screwing up.”
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