By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Tuesday advised the Euro Zone to restore weak banks by resolving the problem of bad loans on their books and make sure they hold sufficient capital to operate.

This is contained in a speech ’’Outlook for Europe: Boosting Growth and Employment’’ by Christine Lagarde, Managing Director (MD) of the IMF to the European Economic and Social Committee in Brussels.

According to Lagarde, there are four (4) key priorities that will boost much-needed growth and employment in the Euro Area; first which is reviving credit.

She said that the experience with financial crises has shown that a robust recovery cannot resume without decisively resolving the problems of an ailing financial sector which Europe has lagged somewhat behind other countries in this regard.

Lagarde affirmed that it is critical that the flow of credit on reasonable terms to businesses and households be restored by restoring the health of weak banks by resolving the problem of bad loans on their books and making sure they are holding sufficient capital to be viable once again.

’’Reviving credit growth also entails properly accounting for, and disclosing, how bank assets and liabilities are valued so that investors and depositors may regain confidence,’’ she said.

She further affirmed that with these objectives in place, Europe is ready to undertake a comprehensive, complex, and ambitious exercise to clean up its banks under the aegis of the new European bank supervisor, the European Central Bank. ’’A job well done will set the stage for a return of confidence, credit and growth. In that context, completing all elements of a banking union remains a priority’’ the IMF boss said.

The second priority, she said is the support for demand by making the ECB keep interest rates low and convince investors that it will do so for as long as is necessary. ’’It must act preemptively to stall further declines in inflation and inflation expectations. It needs to find ways to reduce the cost of lending to small- and medium-sized enterprises, the largest employers within Europe,’’ Lagarde said.

According to her, in the event growth is low for a protracted period of time and monetary policy options are depleted, fiscal policy will need to provide more support to domestic demand.

The third priority in boosting the much-needed growth and employment in the Euro Area is reducing of debt to enable it pick up substantially unless households, corporates and sovereigns also get their finances in order.

Lagarde said reducing the debt burden will make borrowers more attractive in the eyes of lenders, and revive prospects for credit, which will free up income from the need to service debt toward supporting consumption and investment.

She said for the private sector, it means that governments need to put in place the structures to facilitate private debt restructuring. ’’This includes effective national insolvency frameworks to reduce the time it takes to restructure debt,’’ she said.

The IMF Chief said public sector debt burdens also need to be addressed. ’’In many countries, fiscal consolidation is hard to avoid, and our experience suggests that this is best done in the context of a medium-term framework and in a transparent manner. But ultimately, bringing down debt levels in a sustained way requires higher growth,’’ Lagarde said.

The fourth priority is bringing in more competition and flexibility to spark innovation, boost competitiveness, and enable resources to go where they are most productive. But it also means helping labor markets to support growth and adjustment.

Though she said Europe’s progress in tackling big challenges has been made and signs of growth have begun to emerge after several years of declining activity, and question marks about the viability of the monetary union have dissipated.

’’Some countries, hit hard by the crisis, had to undertake a great deal of adjustment, but they appear to be stabilizing. Financial markets are more upbeat and foreign capital that fled Europe is gearing up to return’’ she affirmed.