The International Monetary fund has called on the European Union to increase the size of its sovereign bail-out fund, and allow it greater flexibility in tackling the problems of the so-called euro zone peripheral states, including Ireland. The IMF also calls for a Europe-wide bank resolution scheme, and says bank creditors, and not taxpayers, should bear the ultimate cost. In its latest financial stability report, the IMF says the euro zone debt crisis is the most pressing problem in global finance. It says markets are worried about the lack of a comprehensive plan to fix the problem, and it warns that time is running out. It says the negative feedback loop between the stability of the banking system and sustainable levels of national debt must be broken to prevent problems spreading beyond Ireland, Greece and Portugal. The IMF calls for the European Stability Fund to be made bigger, and given a more flexible mandate to tackle the problem. It wants to see credible banks stress tests, followed by the swift recapitalisation of viable banks, and the shutting down of non-viable ones. It says the introduction of a pan-European bank resolution framework, backed by an EU wide government fund, would help to break the link between troubled banks and national governments. In general, the IMF says bank resolution schemes should preserve stability in a complex global financial system, while ultimately making creditors bear bank losses, rather than taxpayers. The International Monetary Fund has raised its growth forecasts for the world economy slightly, though it has warned of risks to a recovery. In an update to its World Economic Outlook, published in October, the IMF said world output would grow by 4.4% this year, up 0.2 points from its October forecast. It said this was due to stronger than expected activity in the second half of 2010 and new tax measures passed in the US which are expected to boost growth. The IMF raised its growth forecast for advanced economies to 2.5%, up from a previous 2.2%, but left its euro zone forecast unchanged at 1.5%. The fund said there were signs that private consumption was starting to strengthen again in advanced economies, but growth remained subdued and not strong enough to make a significant dent in high unemployment rates.