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Eurozone pressed over growth at IMF-WB meet

AFP, Washington
THE world's economic policy elite kept up pressure on the eurozone Friday to fight off stagnation, with Germany under the gun to support more spending to spark growth.
But Berlin continued to fend off pressure to allow a loosening of budget constraints across the struggling euro area, saying it would be "foolish" to sacrifice the gains made in improving government finances.
Finance ministers and central bank chiefs from around the world, in Washington for the annual meetings of the International Monetary Fund and World Bank, voiced strong worries that the eurozone economy was stalling and on the edge of a new recession.
Underscoring their concern, markets continued to plummet. European shares, measured by the Euro Stoxx 50 index, fell 1.4 percent Friday for a loss of 3.7 percent over a week. Wall Street’s S&P 500 index sank 2.1 percent Friday, for a 3.1 percent weekly loss.
"The European economy, especially the eurozone, is facing stronger headwinds than we had expected during our spring meetings, " said Poul Thomsen, head of the IMF's European department.
"Domestic demand is recovering too slowly, and external demand has also disappointed," he said.
"An extended period of very low inflation... will make it much more difficult for those countries that have to reduce still-excessive public debt burdens, and households and companies to clean their balance sheets."
Earlier this week the IMF pared its growth forecast for the eurozone to 0.8 percent this year and 1.3 percent in 2015, but also said there was a 40 percent chance that the region could fall back into recession.
European Central Bank President Mario Draghi admitted that slowing demand was a factor in pulling down inflation, which is now at 0.3 percent and seen as a clear indicator of the risk of the eurozone contract-
ing.
Most attention has turned to Germany, with Berlin being urged to ease its objections to greater spending on growth- and job-producing activities like infrastructure development even if it means higher debt loads for eurozone governments.
Traditionally a backer of strong government budgetary discipline, even the IMF this week stressed that more borrowing and deficit-spending by states aimed at strengthening growth is desirable.
But German Finance Minister Wolfgang Schaeuble said it would be "foolish" to put at risk the gains made in stabilizing public finances across the eurozone.
"And anyway there is not much to be achieved" in terms of strengthening longterm growth, he told journalists in Washington.
Germany appeared to have some support
for its emphasis on restructuring rather than spending as a path back to strength for the eurozone.
Top finance officials of the G20 group of industrial powers, also meeting in Washington Friday, focused on reforms as the solution.
"There's a recognition that Europe can get better, but it does need to make the decision to carry out these structural reforms," said Australia's Treasurer Joe Hockey, whose country holds the G20 presidency.
But Germany remained under pressure to allow some ground for stimulus.
The malaise in Europe was reflected in new ratings agency actions Friday. S&P lowered its outlook for France to "negative," implying a downgrade could come within months if its situation does not turn around.
And S&P cut Finland's top-grade AAA rating as well.
While Europe's difficulties were seen as the greatest threat, the IMF-World Bank meetings kept the focus on other looming perils for the global economy: turmoil in Ukraine and the Middle East, and the still-uncontrolled Ebola epidemic in West Africa, which has killed about 3,900 people in just a few months.
World Bank President Jim Yong Kim faulted the world community for a slow reaction to the epidemic, which the Bank warned could cause nearly $33 billion in economic damage to the countries of West Africa next year if not brought under control by December.
"The stakes of this effort in human lives and economic growth are incredibly high and grow higher every day we delay in ramping up our response," he said.