IMF boss hails progress

International Monetary Fund chief Christine Lagarde has 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, she warned that if the situation in Europe worsens, Asia will feel the effect through trade and financial impacts.

Her visit to Japan came as Greece and Italy 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 blowout.

"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 .

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.

The procedure to confirm the new Government in parliament will begin tomorrow and its first job will be to persuade the EU and IMF to disburse an €8-billion (NZ$14b) slice of aid from a 2010 bailout deal that is needed by December 15 when state coffers will run dry.

Also on Friday, the Italian upper house approved a reform package aimed at staving off bankruptcy, easing market tensions on the eve of Prime Minister Silvio Berlusconi's expected resignation.

Lagarde said a new leader for Italy would be "a sign of both clarity and political credibility, which is crucial to stabilising the situation."

Lagarde, 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 tackle the problem.

Asia "clearly continues to propel the global recovery" but Japan, like the rest of the world, would also face challenges.

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

She said the channels of trade and the financial sector were "conductors of crisis contagion" and that Japan would be hit if its export destinations faced difficulties.

Lagarde added that Japan should make it a priority to reduce its mammoth public debt, which is running at more than 200 per cent of GDP.

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.

- AAP