IMF chief warns of risk of Greek 'contagion'

International Monetary Fund chief Dominique Strauss-Kahn said yesterday there was a risk that "contagion" from the Greek debt crisis could engulf other weakened European economies.

"There are always risks," Strauss-Kahn said said in comments to the French daily Le Parisien published yesterday, when asked about investor fears the crisis could contaminate fellow eurozone members such as Spain or Portugal. "We must avoid contagion, and that is also what the Greek plan was tailored to do," he said. "We must nevertheless all remain extremely vigilant."

Pushed to the brink of default, the Greek government agreed at the weekend to slash spending and raise taxes in return for €110 billion in loans over three years from eurozone countries and the IMF.

But financial markets worldwide suffered heavy losses as fears spread overnight yesterday from Europe and Wall Street to Asia that the bailout will not be enough to stop its debt crisis hitting Spain and Portugal.

Mr Strauss-Kahn played down immediate concerns about Portugal, where the main stock market index plunged more than four per cent on Tuesday.

"People talk about Portugal, but it is already taking action," he said.

"And other countries are in a far more solid position," Mr Strauss-Kahn argued, dismissing the notion that any major European economy could be affected.

"There is no real risk for France, Germany, or other large European countries," he told the paper.