IMF warns France on austerity overkill The call for less austerity reflects IMF fears that the global recovery is at risk of faltering if much of the world tightens in unison, and if the US Federal Reserve presses ahead with plans to wind down stimulus and drain the world of dollar liquidity. The mere threat of Fed tapering has already pushed borrowing costs sharply across the world, precipitating currency crises in India, Brazil, Turkey, South Africa, Indonesia, Ukraine and beyond. The report said the eurozone's underlying debt woes are getting worse, with risks of outright "debt deflation" in the crisis-ridden periphery. "Weak growth has contributed to deteriorating debt dynamics," it said, warning that prolonged stagnation could slowly asphyxiate the South, where real exchange rates still remain over-valued. It called for "policy action on multiple fronts" to head off a fresh eruption of the crisis, a rebuke to those in Brussels and Berlin who think the problem is solved. The IMF said France had tightened policy by 2pc of GDP last year and 1.8pc this year but had failed to enjoy any improvement in the debt trajectory because recession shrank the economic base, a trap known as the denominator effect. Amid a deteriorated macroeconomic environment, the outlook for public debt has worsened. The debt-to-GDP ratio is projected to peak at 94pc of GDP in 2015," it said. This is higher than earlier estimates. The report said France must push through a string of labour reforms and break down barriers in the service sector to anchor long-term credibility, as well as cutting the "labour tax wedge" - the difference between take-home pay and the full cost to employers. Germany was also reproached for doing too little to help rebalance the global system, told to shake up its internal structure to unleash consumption and narrow its current acount surplus, which ballooned to 7pc of GDP last year. The IMF said Germany's real exchange rate is 8pc undervalued on an historical basis as result of the euro structure.