TOKYO - The International Monetary Fund urged European policymakers to deepen the financial and fiscal ties within the euro area with some urgency to restore sagging confidence in the global financial system.

In its semi-annual check on the world's financial health, the Fund said the euro area's debt crisis was the main threat and the risks to global financial stability had risen in the last six months, leaving confidence "very fragile".

The euro area's plodding progress means European banks are likely to offload $2.8 trillion in assets over two years to cut their risk exposure, an increase of $200 billion from a prediction six months ago, the IMF estimated. That could shrink credit supply in the periphery by 9 percent by the end of 2013, crimping economic growth.

"Despite many important steps already taken by policymakers, this agenda remains critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline," the IMF said in its Global Financial Stability Report (GFSR) released on Wednesday.

Jose Vinals, director of the IMF's monetary and capital markets department and the main author of the financial stability report, said Europe's troubles should serve as a lesson to the heavily indebted United States and Japan that delaying the necessary policy adjustments until markets force their hands would lead to "harsher economic outcomes."

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