Stockholm: The worst is yet to come for Europe's debt crisis and the region's failure thus far to fix its woes now threatens to overshadow growth in Asia and the US, Swedish Finance Minister Anders Borg said.

Europe's turmoil will "definitely" get worse before the situation improves, Borg told reporters in Stockholm on Thursday. "We continue to have a lot of problems in southern Europe and what will eventually dominate of these two factors remains to be seen," he said, referring to the euro area's crisis versus recovery signs elsewhere in the world.

As Europe stays mired in its crisis for a third year, leaders are struggling to thrash out rules to tighten economic coordination, while creditors in Greek debt have yet to strike a deal on how much their holdings will be written down.

According to Edward Parker, managing director at Fitch Ratings, Europe's crisis will be "long and drawn out," he said in an earlier interview in Stockholm.

Political will

Parker criticised a lack of political will in the region to achieve the fiscal union that's needed.

The euro lost 0.2 per cent against the dollar to trade at 1.2949 as of 8:16am in London yesterday.

Yields on 10-year notes sold by a number of European governments including Sweden, Germany, the Netherlands and Finland rose yesterday.

Sweden yesterday paid 14 basis points less than Germany to borrow for 10 years, compared with 16 basis points on Thursday.

Recoveries elsewhere in the world are showing signs of gaining a firmer footing, Borg said.

"We have seen some positive growth signals in the US and Asia," he said, adding that there is also a "positive" stabilisation taking place in stock markets.

The Dow Jones Industrial Average has gained 3.3 per cent this year, while the Stoxx Europe 600 index is up 4.9 per cent in the same period, compared with an 11 per cent loss last year.

The world economy will grow 2.5 per cent this year, down from a June estimate of 3.6 per cent, according to the World Bank.

The International Monetary Fund will cut its global growth forecast for 2012 to 3.3 per cent from 4 per cent when it publishes its World Economic Outlook report this week, the Daily Telegraph said on Thursday, citing a leaked draft of the publication.

Contribution

Sweden, which is in the European Union but not a euro member, may contribute as much as 100 billion crowns (Dh54.3 billion) to the IMF to help boost the Washington-based fund's rescue kit, central bank Governor Stefan Ingves said last month.

It will take "some time" before the IMF is in a position to disclose the amount it has garnered in commitments from member countries, Borg said.

The IMF proposed last week to raise its lending capacity by as much as $500 billion to insulate the world against any worsening of Europe's debt crisis.

  • 2.5%: growth in world economy by World Bank
  • 3.3%: expected growth for this year by IMF
  • 3.3%: gain in Dow Jones index this year
  • $500b: expected rise in lending capacity of IMF