The euro zone needs a comprehensive solution to the debt crisis rocking the group and must avoid a country-by-country approach, the head of the International Monetary Fund said on Tuesday.
Dominique Strauss-Kahn's call during a visit to Greece -- the first euro zone country rescued by an EU/IMF bailout -- came after euro zone ministers on Monday resisted IMF calls to do more to quell the currency bloc's debt crisis.
He said there was a risk of Europe becoming divided, and urged it to agree more coordinated policies.
The euro zone has to provide a comprehensive solution to this problem. The piecemeal approach, one country after another, is not a good one, Dominique Strauss-Kahn told reporters after meeting Greek Prime Minister George Papandreou.
European bond markets remained tense on Tuesday, following a decision after a five-hour meeting by the bloc's 16 finance to take no new measures to tackle the threat of contagion, arguing the existing emergency fund was sufficient.
Before Monday's meeting, the IMF had urged the ministers to increase the size of a 750 billion euro ($1 trillion) bailout mechanism for debt-stricken states and suggested the European Central Bank step up purchases of government bonds.
Asked by a Greek lawmaker during his visit to Athens if there was a risk that Europe will be split into two parts, Dominique Strauss-Kahn said: There is a risk...There are different growth rates in different areas of the euro zone.
But he added, speaking through a Greek interpreter, that he saw no risk of Germany exiting the euro zone because it was dedicated to the common currency.
And he said he was optimistic the euro zone would eventually do the right thing to address its debt woes.
It's not a huge problem for the euro zone. I don't agree with those who say that the future of the euro zone is at stake but it's a problem that has to be addressed, he said.
I think this problem will be solved, it takes time because institutions in the European system probably need to be a little improved to be able to react faster to crisis ... The right decisions have been made in the past and I'm confident that at euro zone level the right decisions will be made.
He said sluggish European growth and recovery was an even more serious problem: Nobody would be talking about debt crisis if there was high growth in Europe. The question is growth, growth, growth, not only growth for the sake of growth but growth for jobs, he said.
Strauss-Kahn praised Greece for fiscal progress made in exchange for a 110 billion euro IMF/EU bailout and said the debt-ridden country must do even more to restore growth, reform the labor market and fight tax evasion.
During his visit, hundreds of pensioners marched through Athens chanting Hands off our pensions to protest against his visit and thousands of civil servants were planning to take to the streets later on Tuesday.
In a separate protest rally, about 6,000 gathered near parliament as he spoke to lawmakers. The protesters burned hanged effigies of the IMF and the ruling PASOK party.
His presence here is not welcome, a senior public sector union official, Ilias Iliopoulos, told Reuters. The austerity measures the IMF prescribed will not help us exit the crisis.
Strauss-Khan told reporters the IMF should not be vilified because it was in Greece to help.
Many people in Greek society believe we're the bad guys ... Some say the well-known 'IMF go home'. But believe me, you are better off with us here than with us at home, he said.
Workers at trains, buses and the metro will walk off the job for 24 hours on Wednesday and march to the ministry of finance in Athens to protest against the planned consolidation of state enterprises.
The IMF chief said he was confident Greece would deliver on the reforms and return to growth. I am confident, I believe growth will come back rather soon, (maybe at) the end of 2011, certainly the beginning of 2012.
(Editing by Stephen Nisbet)