Europe remains in the grip of a deep recession, with the region’s economic growth expected to fall by 4.2 per cent this year, the International Monetary Fund (IMF) said in its Spring Regional Economic Outlook. Gross domestic product (GDP) growth in Europe’s advanced economies is expected to fall by four percent this year, and to slip by 0.4 percent in 2010. The GDP of Europe’s emerging economies will plunge by 4.9 percent on average in 2009, but rise by a modest 0.7 percent in 2010.

The IMF said the economic downturn in Europe could end gradually in the second half of 2010, but only if more policy actions are carried out, especially in the financial sector. The director of the IMF’s European Department, Marek Belka, urged European nations to speed up and coordinate as much as possible their economic stimulus policies in order to hasten the end of the recession. “Policy-makers need to step up the pace of intervention in the financial sector,” Belka told journalists in Paris during the presentation of the Spring Regional Economic Outlook.

“The (European) financial sector is due for an immediate and thorough spring cleaning,” Belka said, noting that trust in the financial system still “remains elusive.” He also called for a “harmonisation of the parameters of intervention and, in due course, of exit policies.” Economic policies are still largely being carried out on national levels, he said, adding: “Fiscal policies will be more effective when taken in coordination.” This did not mean the use of identical criteria, but would be more what Belka called a “package approach.” Belka defined this approach as a process in which “a group of fairly diverse countries - some fairly comfortable, others in dire straits - address their concerns in a regional way.”

One example he gave was the use of so-called stress tests for banks, which should be carried out by individual countries but could be harmonised and coordinated by the Committee of European Banking Supervisors (CEBS) in London. Belka also said that the usefulness of interest rate cuts by the European Central Bank (ECB) is nearly at an end as the ECB trimmed its benchmark refinancing rate to an historic low of one percent. “The present level (on interest rates) is not the absolute low level,” Belka said. “But we are coming close to the point when the efficiency of interest rate reductions is exhausted.”