IMF warns Euro economy has reached critical stage

The banking union the IMF calls for would open up banks in euro countries to centralized oversight and it would centrally deal with banks that are no longer viable. It would also have a scheme where the deposits in all euro countries are guaranteed by the entire euro zone to protect deposits in weaker nations. But Germany, the EU’s strongest and biggest economy, is opposed to a banking union that includes common deposit insurance.

Germany fears that troubled countries would be taking advantage of its sound economic situation. Berlin also does not want to be responsible for its struggling neighbors. So it remains unclear whether Europe will ever have a full-scale banking union.

Meanwhile, the IMF also calls for boosting growth. It predicts that the euro zone economy will shrink by 0.3 percent this year and 0.9 percent next year. For a long time, analysts have been calling for generating more economic activity by further liberalizing the EU’s single market for the free movement of goods, capital, people and services.

The single market is still not open enough because national regulations make it difficult to do cross-border business in the EU.