IMF: Global Debt Threatens World Economy

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The International Monetary Fund is now warning that out-of-control government debt is the greatest risk to global financial stability.

"Concerns about sovereign risks could also undermine stability gains and take the credit crisis into a new phase, as nations begin to reach the limits of public sector support for the financial system and the real economy," the IMF said.

The IMF points to ballooning debt in Europe, the U.S. and Japan as the world's top threats and it fears this global debt will kick start a new financial decline.

Banks in these countries could soon find it hard to lend money to businesses, which would in turn collapse the economy.

"The recovery is still fragile. ... There are concerns over rising sovereign risks related to the buildup of public debt," says Jose Vinals, head of the IMF's monetary and capital markets department.

The IMF wants the world's worst offenders, including the U.S., to lay out credible plans for reducing debt.

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