IMF calls for euro action to avert global catastrophe - Telegraph.co.uk

"The existing strains in the markets require a leap to better policies if the euro area is to stabilise funding markets and reduce spreads, arrest capital flight, and begin to reintegrate financially," the report said.

The IMF has identified an "increase in macroeconomic risks" as investors flee southern European countries and move investments to the North or outside the eurozone, creating a new economic divide in Europe.

"Within the euro area, capital has continued to move out of the periphery, both to the core and to countries outside the euro area altogether, as official measures to safeguard integration have so far proved insufficient to offset strong private–sector forces for fragmentation," said the report.

In signs that progress could be difficult, EU finance ministers meeting in Luxembourg failed to make progress on plans for banking union or proposals to use the euro's bail–out fund to recapitalise banks.

Timothy Geithner, US Treasury Secretary, said Europe was "unlikely to be a support for the global economy for some years to come". He said the eurozone was on "a more promising path", but there was "a very hard road ahead".