The head of the International Monetary Fund (IMF) Dominique Strauss-Kahn has said the debt crisis in Europe should not be underestimated, but tipped Ireland to recover.
On Sunday, the European Union and the IMF announced an €85 billion bail-out for Ireland to shore up its banking sector and meet its debt obligations.
The move has intensified speculation that other debt-ridden euro zone members such as Portugal and Spain could also need a bail-out in due course.
'We should not underestimate the importance of this crisis which, in Ireland, is mostly coming from the banking sector,' he told reporters after meeting Indian Finance Minister Pranab Mukherjee in New Delhi. 'But I think the decision that has been made will fix the problems in the banking sector, and the Irish economy will come back on track rather rapidly,' he added.
Speaking in India, which has the world's second-fastest growing economy after China, he also proposed a radical break from the past in the way the heads of the IMF and its sister organisation the World Bank are selected.
Under an informal arrangement dating back to the formation of the global financial bodies after World War II, Europeans and Americans have always headed both institutions.
Strauss-Kahn is from France and his counterpart at the World Bank, Robert Zoellick, is American. The Frenchman proposed that the next heads should be from neither Europe nor America. At the beginning of the month, the IMF executive board agreed to sweeping changes that will give China and other emerging-market economies a greater say in the financial institution.
Later, a spokesperson for the IMF defended the deal struck with the Government.
Speaking at a briefing, Caroline Atkinson said Ireland received the best possible interest rate on the €22.5 billion element of the package coming from the IMF.
She said there was no discretion available to the fund in dealing with the interest rate for Ireland, the rules for which are governed by treaty.
Ms Atkinson welcomed the European CB extension of liquidity measures as a sign that Europe is serious about tackling the problems facing the eurozone.
