IMF's Lagarde urges euro zone to take 'decisive steps'

The head of the International Monetary Fund on Tuesday called for "decisive steps" by European policymakers to deal with the region's financial crisis.

In a speech on the upcoming Rio+20 earth summit in Brazil on June 20-22, IMF Managing Director Christine Lagarde said economic and financial stability was critical to addressing the world's environmental challenges.

The summit, which follows 20 years after the original Rio Earth Summit that led to the Kyoto Protocol on capping greenhouse gas emissions, comes amid a faltering global economy and deep concerns over Europe's financial future.

"We need a strategy that is good for stability and good for growth - where stability is conducive to growth and growth facilitates stability," she told an event at the Washington-based Center for Global Development.

"This must start with advanced economies, especially in Europe. Policymakers need to take decisive steps to break free of the crisis," she added.

Policymakers should aim for a combination of "very accommodating" monetary policy, use of common resources to provide direct support to banks and support growth-friendly policies where fiscally possible.

The euro zone crisis has intensified since last month as investors worry about the possibility of Greece leaving the single currency. The European Union on Saturday agreed to a 100 billion euro bailout for Spanish banks.

Lagarde said it was critical that governments in advanced economies outline credible medium-term plans to lower public debt. Without such a plan, countries might be forced to make bigger adjustments sooner, she cautioned.

Lagarde said developing economies were holding up relatively well in the wake of increased financial strains in the euro zone but will "face a cold chill" if global conditions worsened.

"Those with fiscal space should prepare to use it, especially if conditions continue to deteriorate," she added.