IMF says debt-hit euro states need 'unrelenting' reform
Debt-hit states on the fringes of the eurozone need "unrelenting" reform efforts to try to prevent the current crisis spreading, the IMF has warned.
Greece and the Irish Republic have needed bail-outs, and Portugal is also now asking for assistance.
The IMF has also called on the European Central Bank (ECB) to refrain from increasing interest rates further.
And it urged the EU and member states to strengthen banks that need bigger cash cushions against another downturn.
The IMF estimates that the 17 member eurozone will see economic growth of 1.7% this year and 1.9% in 2012, if debt crises do not harm the economy.'Contagion' risk
"Unrelenting reform efforts at the national level of the crisis-afflicted countries need to be the first line of defence," the report from the Washington-based organisation said.
"Contagion to the core euro area, and then onward to emerging Europe, remains a tangible downside risk."
The Irish Republic and Greece are already dependent on 52.5bn euros ($74.44bn; £45.7bn) of International Money Fund aid.
Meanwhile Portugal's bail-out is expected to be worth 78bn euros in the form of loans from other European countries and the IMF.
Many banks in these troubled nations are also being kept afloat by liquidity provided by the ECB.Greek questions
Meanwhile, on Thursday IMF director for Europe Antonio Borges said that its most recent appraisal of the situation was that Greece did not have to restructure its debt.
However that assessment was made in February, and a new audit of its books is being carried out by experts from the IMF, ECB, and EU.
Analysts meanwhile have issued further warnings about the health of Greece's finances.
"As a result of weak growth and sizeable fiscal slippages, Greece has reached the point where, under realistic scenarios, debt dynamics are unsustainable," a research note from Barclays Capital said.
"The countdown to restructuring has started, in our view."Detail required
The IMF also called on European leaders to bolster the powers of the European Financial Stability Facility (EFSF), and its 2013 replacement, the European Stability Mechanism (ESM).
"Commitments have been made to improving lending capacity and pricing under the EFSF," the IMF said.
"Making those commitments operational by filling in the still-missing specifics is now essential."
The IMF also said there was no need for further interest rate increases by the European Central Bank (ECB).
In April, the ECB increased eurozone rates to 1.25% from the record low of 1%.
The IMF said continued eurozone worries may mean the ECB would have to continue providing limit-free liquidity to the region's banks.