* IMF says recovery neither robust nor strong enough
* Boosting domestic demand, more reforms key for growth
* Fiscal situation improves, provides room to manoeuvre
* ECB action, determination to do more is positive signal
(Adds IMF's Lagarde)
By Martin Santa
LUXEMBOURG, June 19 The euro zone's fiscal
stance strikes the right balance between reducing debt and
bolstering demand, the International Monetary Fund said in a
statement on Thursday.
The euro zone's overall government deficit fell to the
European Union limit of 3 percent of gross domestic product 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 policymakers are discussing how to balance the
reduction of public debts while at the same stimulating 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 those steps fail.
The ECB became the first major central bank to introduce
negative deposit rates - charging banks to park their funds at
the central bank overnight. It also offered ultra-cheap
four-year loans to boost lending to companies. And ECB President
Mario Draghi said the bank was ready to act again if necessary.
"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.
Such a policy move, known as quantitative easing, remains
available to the ECB.
IMF Managing Director Christine Lagarde, asked to elaborate
on her definition of "stubbornly low" explained that stubbornly
would apply to a case when the measures already deployed by the
ECB would prove ineffective.
Low inflation would be price growth that is way below the
ECB target of just below 2 percent. "It seems to us we are
currently in that zone," Lagarde said.
IMF warned that euro zone unemployment, easing only slightly
from last summer's peaks around 12 percent, was still too high.
A jobless recovery is a worry for all states as it puts budget
expenditure under pressure.
"Much higher growth is needed to bring down unemployment and
debt," the IMF said.
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(Reporting By Martin Santa, editing by Jan Strupczewski, Larry