European leaders have been warned that their failure to unite and solve the euro-zone debt problem threatens to increase turmoil in global markets and trigger a new banking crisis.
Antonio Borges, the director of the IMF's Europe department, said in a panel discussion after annual IMF and World Bank meetings in Washington that European countries were acting out of self-interest and that could scuttle the continent's recovery and put growth worldwide at risk.
"If you go to the policymakers, even the European Central Bank, everybody is focused on their own internal restraints, so that we don't have the outcome that we need," Mr Borges said, according to a Dow Jones report.
He added that a lack of political and financial unity could put "even the soundest countries, the countries with the soundest banks", at risk. He also reiterated calls for banks to be recapitalised as Greece inches closer to the brink of a sovereign default.
The IMF has for weeks championed a further capital injection into European banks, meeting stiff resistance from lenders and policymakers contending that the system was sufficiently liquid.
As concern grows about Greece and the banks' large holdings of the country's debt, however, more officials are warming to the idea of another boost for lenders.
Joaquín Almunia, the EU competition commissioner, said recently that "more banks may need to be recapitalised, on top of the nine signalled in the July stress tests", according to an AFP report.
The perilous Greek situation dominated IMF and World Bank meetings over the weekend in Washington, where finance ministers prepared to face a dizzying new phase in the global economic crisis.
Greece has been flirting with default since last year, averting a financial collapse only with the aid of an EU and IMF bailout package of €110 billion (Dh545.09bn).
Despite big cuts to government spending and higher taxes - moves that have provoked widespread unrest - the country continues to creep closer to financial disaster.
Greece will default next month if it cannot secure more help under the package agreed last year.
The so-called troika of the EU, IMF and European Central Bank are expected to send auditors back to Athens this week to prod the country, potentially paving the way for more aid.
But in a sign that Greece may be running out of options, local media recently quoted the finance minister, Evangelos Venizelos, as telling a party conference that planning was already under way for an orderly default that could mean losses of 50 per cent for creditors.
Mr Venizelos distanced himself from those remarks at the weekend, saying in Washington that Greece was committed to the euro and would not default and exit the currency.
Timothy Fox, the chief economist at Emirates NBD, said euro-zone leaders had revealed themselves as ineffectual and were paying the price against a backdrop of skittish global markets and an increasingly worrying outlook for the global economy.
World markets plunged last week, with stock indexes in the US and Europe shedding between 6 and 7 per cent, wiping out US$3.4 trillion (Dh12.48tn) of investors' wealth.
The IMF, US Federal Reserve and Group of 20 have accurately articulated growing risks to markets and growth, Mr Fox said, but have not come up with solutions.
"While no country is completely blameless, it is the euro zone that lies at the heart of the current crisis and whose policymakers appear particularly ineffectual," he said. "This is because the issue of Greece and its indebtedness has been allowed to fester over the past two years without a credible solution being proposed to contain the crisis and prevent it from spreading further afield."
As time marches on, the range of mechanisms to quell the crisis may also be diminishing. Christine Lagarde, the IMF managing director, said at the weekend the organisation might run out of funds if the crisis deepened. The IMF's current capacity to lend, already tripled in response to the financial crisis, "looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders", Ms Lagarde said, according to a Bloomberg News report.
Publicly, European leaders have stood staunchly behind keeping Greece out of default. Behind closed doors, however, there is reported to be growing scepticism about the country's ability to continue servicing debts that amount to more than 150 per cent of its GDP. A plan could be hammered out to allow Greece to default but keep the country in the euro.