UPDATE 1-Euro zone must act to avoid imbalances -IMF chief

(Adds quotes, background)

By Crispian Balmer

WARSAW, March 29 (BestGrowthStock) – Countries within the euro zone
need to improve their economic coordination to avoid large
imbalances building in the system, the managing director of the
International Monetary Fund said on Monday.

Dominique Strauss-Kahn said the recent financial crisis had
laid bare failings within the Europe Union, but said it could
prove a positive turning point for the 27-nation bloc if leaders
acted on the problems and found joint solutions.

“One of the lessons of the crisis in Europe is that a single
currency without enough economic policy coordination may lead to
huge imbalances,” he said in a speech to Warsaw’s business
school during a one-day visit to Poland.

“In the wake of the crisis, European integration must be
sped up, not slowed down … now is the time to take the
European project to the next, higher level,” he said.

He said weak coordination meant Europe had not been able to
stave off the Greek debt crisis and added that other problems
could arise unless economic governance was instigated.

Euro zone leaders last week agreed that the IMF should have
a role in any eventual rescue package for Greece, but
Strauss-Kahn did not refer to this in his speech.

The leaders also called for an “economic government of
Europe” to coordinate economic and fiscal policies in the euro
zone, but there did not appear to be any broad consensus on what
this could lead to or what was needed.

Strauss-Kahn’s warning about imbalances building within the
euro zone came just two weeks after Paris urged Berlin to boost
domestic demand, saying Germany’s huge trade surplus threatened
the competitiveness of other euro zone countries.

Germany rejected this, saying that Europe as a whole needed
to raise its competitiveness to correct the imbalances.

Strauss-Kahn, a former French finance minister and long-time
supporter of closer EU integration, said the first priority for
Europe was to overhaul its financial architecture.

“I see a clear need for an integrated European framework for
crisis prevention, management and resolution,” he said.

Another priority was for EU countries to work together to
sustain the economic recovery.

“To restore confidence in Europe’s fiscal sustainability,
policymakers must formulate, communicate and begin to implement
strategies for exiting from crisis-related intervention policies
as soon as possible,” he told the business students.

“Having said this, policy actions that would undermine
aggregate demand should be postponed until 2011. But those that
do not should be implemented now.”

(Editing by Mike Peacock)

UPDATE 1-Euro zone must act to avoid imbalances -IMF chief