IMF’s Dominique Strauss-Kahn wants fiscal and reform powers given to Europe

A federal Europe, with more sovereign power ceded to the centre, is the best defence against any future crisis, the head of the International Monetary Fund has declared.

Philip Aldrick

Warning that “the sovereign crisis is not over”, Dominique Strauss-Kahn, the IMF managing director and a likely French presidential candidate, called on the European Union to move responsibility for fiscal discipline and structural reform to a central body that is free from the influences of member states.

The proposal from so powerful a figure will dismay Ireland and other peripheral euro-zone nations already fearful of a loss of sovereignty as the price of a bail-out. Ireland is expected to agree a rescue of up to €100bn (£85bn) within days, in the form of a low-cost loan to shore up the banks.

The scale of Ireland’s problems was laid bare on Friday by Allied Irish Banks, which revealed that it has lost €13bn of customer deposits – mostly “institutional and corporate” – since the start of the year, 17pc of its entire deposit base.

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