IMF chief’s plan at odds with Germany

LUXEMBOURG – The head of the International Monetary Fund warned Thursday that the euro is under “acute stress” and piled pressure on Germany by advocating a series of measures to pull Europe out of its crisis that its Chancellor Angela Merkel has strenuously opposed.

Christine Lagarde urged leaders of the 17 countries that use the euro to consider jointly issuing debt, aiding troubled banks directly and perhaps relaxing strict austerity conditions on countries that have received aid – all measures that Merkel, the leader of the eurozone’s largest and most powerful economy, has resisted.

But Lagarde, speaking after a meeting in Luxembourg of the finance ministers of the 17 countries that use the euro, said the IMF had found the situation in Europe to be dire.

“We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area,” she said late Thursday.

Asked what Germany would think of her suggestions, she smiled and said “We hope wisdom will prevail.”

Lagarde issued her warning in the lead-up to a week that promises to be unusually active in the fight to save Europe’s common currency.

• Today, Merkel will travel to Rome to meet Italian Premier Mario Monti and the leaders of France and Spain in an effort to forge a common strategy to save the currency.

• By next Monday, Spain will make a formal request for financial assistance to bail out its teetering banks, according to Jean-Claude Juncker, the Luxembourg prime minister who is also president of the eurogroup of finance ministers. Earlier Thursday, Spain announced that independent auditors had found that its banks would need up to (euro) 62 billion ($78.6 billion) to protect themselves from financial shocks.

• Also Monday, the IMF, the European Union and the European Central Bank – the so called “troika” overseeing Greece’s bailout – will send representatives to Greece to begin a review of the country’s progress in reforming its budget.

• And Thursday and Friday, leaders of the 27 countries that are members of the European Union will gather in Brussels for a high-stakes meeting on how to save the euro – and their intimately intertwined national economies.

That meeting will take place amid worldwide fears that an economic crack-up in Europe could drag down the entire global economy. Europe is a substantial trading partner with the rest of the world. Any deep recession in Europe will be felt in the order books of other leading economies – including the U.S.