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IMF fears time to fix financial system is running out

The International Monetary Fund fired another shot across the bow of the global economy yesterday, warning that there's not much time left to fix the crippled financial system.

It said political fighting is hampering efforts to restore economic stability and reckoned up to €300bn (£263bn) could be lost by banks as a result of the eurozone debt crisis.

Worryingly, the agency said markets have lost faith in political leaders to provide a lasting solution to the economic problems in the eurozone and the US.

The "political weakness" comes as market turbulence from the eurozone, a credit rating downgrade for the US and signs of a global economic slowdown shocked the global financial system, the IMF said.

Elsewhere, the IMF estimated that the sovereign debt crisis in Europe had added €300bn (£261.9bn) to the risk exposure of banks in the European Union.

The IMF is holding its annual meeting at the end of this week in Washington DC. The meeting brings together finance ministers and central bankers from around the world.

The global financial stability report comes a day after the IMF published its world economic outlook, in which it warned the economic recovery had entered "a dangerous new phase" and slashed growth forecasts for the UK and countries across the world.

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Political differences within countries hit by the eurozone debt crisis and among countries called upon to help have hindered progress, the IMF said.

The Greek cabinet was meeting as the report was published to discuss speeding up austerity measures to persuade the European financial leaders to release further bailout funds.

Meanwhile, Italy saw its credit rating slashed by Standard -amp; Poor's, fuelling fears of debt contagion in the eurozone.

The IMF report said: "This environment of financial and political weakness elevates concerns about default risk and demands a coherent strategy to address contagion and strengthen the financial system."