The debt crisis engulfing Europe poses a significant risk to the global economy and the European Union must take decisive action to stop the spread of contagion, the International Monetary Fund said this evening.
In a review of euro zone financial policies, the IMF said the economic recovery is "solid" in most EU nations.
But the fund warned that unresolved fiscal problems in Greece, Ireland and Portugal could "spill over" into other nations and threaten the global economy.
"There was shared concern that the sovereign tensions could spill over into the core economies via the financial system with large adverse regional and global implications," it said.
The report comes ahead of a key meeting in Brussels on Thursday. European leaders are set to hammer out the terms of a second bailout for Greece and discuss the intensifying debt crisis as it threatens to spread to Italy and Spain.
"The crisis in the periphery is not fully addressed yet," said Luc Everaert, a division chief in the IMF's European Department. "And the directors think this should be done very urgently."
European leaders "should not delay clarifying" the various proposals being discussed to address the crisis, said Everaert. The role that private sector investors will play, he said, "is a large uncertainty that has to be resolved."
Indeed, a key sticking point in the negotiations over Greece is whether banks would be forced to take losses as part of further bailouts of the debt-saddled nation.
Agencies