IMF official says "scepticism" about euro debt remains

The euro zone has not yet convinced investors its debt position is sustainable and further contagion could harm global economic recovery, a senior IMF official was quoted as saying.

In an interview with Bloomberg news agency late on Thursday, Naoyuki Shinohara, deputy managing director of the International Monetary Fund, said the premium investors demand to hold Greek and Irish bonds remained "very high" despite their bailouts.

"That means that scepticism over the sustainability of their debt in the market hasn't been cleared away," he was quoted as saying.

"At least for now it looks like the spillover from the European sovereign crisis to areas outside of the region will be limited," Shinohara said. "However, if the European sovereign debt problems were to become bigger, we need to keep in mind that that could bring about considerable downside risks."

Heavily-indebted Spain and Portugal staged successful bond issues this week, easing some concerns about an escalation of euro zone debt strife and buying the bloc's leaders more time to come up with a new package of anti-crisis measures, which analysts say is both essential and urgent. [ID:nLDE70C15C]

Following rescues of Greece and Ireland last year, Portugal and Spain are seen as the euro zone countries most at risk of needing a bailout and weak demand for their bonds would have aggravated jitters and raised pressure on European leaders to act fast.

[Source: Reuters, London, 14Jan11]

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