The International Monetary Fund has called on the European Union to increase the size of its sovereign bailout fund, and allow it greater flexibility in tackling the problems of the so-called eurozone peripheral states, including Ireland.
The IMF also calls for a Europe-wide bank resolution scheme, and says bank creditors and not taxpayers should bear the ultimate cost.
In its latest financial stability report, the IMF says the eurozone debt crisis is the most pressing problem in global finance.
Markets are worried about the lack of a comprehensive plan to fix the problem, it says, and it warns that time is running out.
It says the negative feedback loop between the stability of the banking system and sustainable levels of national debt must be broken to prevent problems spreading beyond Ireland, Greece and Portugal.
The IMF calls for the European Stability Fund to be made bigger, and given a more flexible mandate to tackle the problem.
It wants to see credible banks stress tests, followed by the swift recapitalisation of viable banks and the shutting down of non-viable ones.
It says the introduction of a pan-European bank resolution framework, backed by an EU-wide government fund, would help to break the link between troubled banks and national governments.
In general, the IMF says bank resolution schemes should preserve stability in a complex global financial system, while ultimately making creditors bear bank losses, rather than taxpayers.
