Europe is ‘ill prepared’ for another crisis

THE eurozone faces disaster in the next economic downturn because many countries have failed to prepare, a top economist has warned.

During the last financial crisis a decade ago, the single currency zone was kept afloat with interest rate cuts and a vast money-printing scheme. But David Lipton, deputy managing director of the International Monetary Fund, said this may not be possible next time round.

He claimed that with interest rates much lower now than they were before the crisis struck, there is limited scope for further reductions to protect consumer spending in times of strife.

Lipton said: ‘The bottom line is this: the tools used to confront the global financial crisis may not be available or may not be as potent next time.’

Many countries still have high debt following the banking crisis and eurozone meltdown, limiting their ability to bail out banks again. And he added there should be better eurozone-wide supervision of banks and protection of savers’ deposits – and he singled out Italy and others with high debts for failing to take action.

Lipton added: ‘A serious recession could be very damaging for these countries, because they will be shown to be ill prepared. Their weaknesses could present a serious setback for Europe’s goal of convergence of standards of living, productivity and national well-being.’