THE IMF HAS SAID THAT although fears of another banking crash have dropped, Europe’s sovereign debt problems continue to pose a risk to financial recovery and stability.

In its Global Financial Stability Report, the IMF said that the financial system remains vulnerable and warned European countries to address their high debt burden legacy.

When debt levels are high, it said, financial systems are much more sensitive to sudden shifts in market sentiment and conditions.

The report recommended vulnerable euro area countries should pursue policies “aimed at fiscal consolidation and strengthening bank balance sheets” and these countries should be supported by flexible multilateral agreements.

The organisation said that “debt could be reduced through some form of writedown, resturcturing, or one-off transfer” as per an over-indebted household.

Ireland and Greece appear to the countries under the “greatest balance sheet pressures”, it said.

Yesterday, the IMF released a report which predicted Ireland would not beet its debt reduction forecast by the end of 2011. A separate IMF report earlier in the week cut Ireland’s growth rate forecast to 0.5 per cent for this year.

A member of the board of the ECB said today that Irish taxpayers should stop complaining about having to foot the bill of the banks’ debts because they had also benefited during the profitable years.

Read the IMF’s report in full >

Read: Irish government will miss deficit targets for 2011, says IMF >