No Plan B for the euro: IMF

 In a question and answer session to mark the release of the World Economic Outlook report, Olivier Blanchard, IMF Economic Counselor and Director for research department, said that the IMF is doing everything possible to prevent the event that a euro area country opts to abandon the currency.
 "And, my sense is that if I look, even in countries like Greece, to public opinion, there is very strong support for staying in the euro. The euro has costs and benefits. At this stage, we see one of the costs, which is it makes the adjustment especially the competitiveness adjustment, harder. And we tend to forget the benefits. But, people are aware that the euro has changed their life in many ways. So, for the moment, there is no plan B. We basically are doing whatever we can to help countries succeed within the constraints of the euro," he said.
 Blanchard envisioned the extremely large cost to any country of leaving the euro unilaterally. Meanwhile, this would create a contagion risk, which could be sustained by firewalls. 
 "The issue would be if that country goes out, what happens to the others. And, there would probably be pressure in a number of sovereign bond markets, and the issue would be what to do. In that context, being able to give reasonable financing to the other countries would be essential and that is where the funds we're mobilising could be used. Hopefully, if this was done, then the damage to the world economy would be limited. But, again, I want to repeat that we are really working under a scenario in which countries stay in the euro and adjust."
 The IMF proposed to raise its rescue facility by US$400 billion. Japan last week offered to lend $60 billion while the US yesterday declined to help.