Euro zone has correct fiscal stance to cut debt, help growth-IMF

LUXEMBOURG, June 19 Thu Jun 19, 2014 12:53pm EDT

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LUXEMBOURG, June 19 (Reuters) - The euro zone's fiscal stance is close to neutral now after years of austerity and strikes the right balance between debt reduction and supporting demand to help economic growth, the International Monetary Fund said in a statement on Thursday.

The euro zone's overall government deficit fell to the European Union's limit of 3 percent of economic output in 2013, from 6.2 percent in 2010 -- the year when it had to bail out Greece for the first time.

The sovereign debt crisis that followed plunged the euro zone into a deep recession. The economy is now recovering slowly and euro zone policy-makers are discussing how to strike the right balance between reducing huge public debts and stimulating stronger growth.

"After several years of consolidation, the overall fiscal stance for the euro area is close to neutral. This strikes the right balance between demand support and debt reduction. But large negative growth surprises should not trigger additional consolidation efforts," the IMF said.

The IMF noted said the recovery was neither robust nor sufficiently strong and said continued support for demand in the 9.6 trillion euro economy was vital.

The IMF praised the steps the European Central Bank took in early June to help accelerate dangerously slow inflation, but noted more might be needed if the measures already deployed don't work.

"The ECB's willingness to do more, if necessary, is reassuring. If inflation remains stubbornly low, the ECB should consider a large-scale asset purchase program, primarily of sovereign assets according to the ECB's capital key," it said.

"This would boost confidence, improve corporate and household balance sheets, and stimulate bank lending. Overall, it holds the potential to have a significant impact on demand and inflation," it said. (Reporting By Martin Santa, editing by Jan Strupczewski)

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