IMF urges delaying austerity in troubled economies

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The International Monetary Fund has urged Europe to ease on its programme of austerity and give the likes of Spain and Greece more time to sort out their debts.

At the IMF conference in Tokyo, managing director Christine Lagarde said that austerity was causing deep economic wounds in Europe's troubled southern periphery. "It is sometimes better to have a bit more time," she said. "That is what we advocated for Portugal; this is what we advocated for Spain; and this is what we are advocating for Greece."

Ms Lagarde's comments sparked anger from the German Finance Minister, Wolfgang Schäuble, who responded that: "When there is a certain medium-term goal, it doesn't build confidence when one starts by going in a different direction."

Earlier the IMF published research suggesting that austerity was having a more damaging effect than first thought.

The intervention of the IMF will also be a blow to George Osborne, the Chancellor, who has to date lauded the IMF's approval for Britain's austerity.

Meanwhile, Spanish government debt was downgraded to within a notch of junk status by the rating agency S&P, and the price of three-year Italian bonds rose to their highest level for a month.