IMF chief: 'significant progress' in Greece, Italy

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IMF chief Christine Lagarde on Saturday welcomed the 'significant progress' made in resolving the political instability in Greece and Italy that has sent shockwaves through world markets.

But in a Tokyo press conference, the International Monetary Fund managing director warned that if the situation in Europe worsens further, Asia will feel the effect through trade and financial impacts.

Her visit to Japan came as Greece and Italy both forged ahead in efforts to contain political crises that have rekindled concerns the eurozone's debt woes could help send the global economy into a double-dip recession.

Her trip had earlier taken in Russia and China, and in Beijing she called for greater political clarity in Athens and Rome after an alarming rise in Italy's borrowing costs heightened fears it could be the next euro state to suffer a debt blow-up.

"What we wanted at the IMF was political stability and a clear policy in both countries. I believe significant progress has been made," Lagarde said on Saturday.

Greece's new unity government headed by Lucas Papademos took office on Friday to save the debt-stricken nation from bankruptcy after a historic power-sharing deal struck between warring parties.

"I welcome the appointment of Lucas Papademos, who I know well and with whom we will be able to restart work" on the next tranche of bailout aid, Lagarde said.

Also on Friday, Italian lawmakers gave initial approval to a reform package aimed at staving off bankruptcy, easing market tensions on the eve of Prime Minister Silvio Berlusconi's expected resignation.

"As for Italy, I am also pleased that the Senate has now passed the reform plan that was submitted to Parliament," Lagarde said ahead of Saturday's lower house vote.

She added that Berlusconi "announced his intention to step down and I suppose that an appointment will be made within very few days, which again will be a sign of both clarity and political credibility, which is crucial to stabilising the situation."

The former French finance minister warned that a deepening of the eurozone crisis would impact Asian economies, echoing earlier comments that the world risked a 'downward spiral' if it did not pull together to tackle the problem.

Lagarde said Asia 'clearly continues to propel the global recovery' but warned that Japan, like the rest of the world, will also face challenges given the difficult situation in Europe.

"No country is immune to the current crisis," she said after meeting with Japanese Finance Minister Jun Azumi, Bank of Japan Governor Masaaki Shirakawa and financial services minister Shozaburo Jimi.

Lagarde added that Japan should make reducing its mammoth public debt a priority.

"We shared the view that the priorities going forward are the swift implementation of reconstruction spending, and the adoption of a strong medium-term plan to reduce public debt," she said in an earlier press release.

Japan's public debt is one of the world's largest at more than 200 percent of GDP, after years of pump-priming measures by governments trying in vain to arrest the economy's long decline.

Much of government spending is swallowed up by a social security system catering to a rapidly ageing population, while entrenched deflation and the feeble economy have made it hard for lawmakers to curb borrowing.

Lagarde also said she welcomed Japan's decision to enter talks towards an Asia-Pacific free trade deal, 'which can make a vital contribution to this country's future competitiveness and growth'.

Japan is the IMF's second-biggest stakeholder after the United States.