IMF urges Europe to avoid worsening debt crisis (by Greg Robb)

WASHINGTON (MarketWatch) - Europe must take more steps to avoid a worsening of the debt crisis, the International Monetary Fund warned Tuesday. If Europe doesn't act, there would be "vicious debt spirals," the IMF said in its twice-a-year fiscal monitor report, which was launched two years ago. Spain and Italy can live with higher market interest rates in the short term, giving time for "steps to be taken that can restore market confidence before the debt dynamics become excessively adverse," the report said. The difference in yield, or spread, between German bunds and Italian and Spanish counterparts will remain about 240 basis points for the next few years, the report said. The IMF's recommendations were not radical. It called for some further fiscal adjustment, pro-growth measures and "an adequate crisis management framework for the euro area." The IMF said Germany could slow down the pace of its austerity measures if the economic outlook continues to weaken. The widening crisis in the euro area is a "cautionary tale" for the U.S. and Japan and other countries with high debts and deficits, the IMF said.