Christine Lagarde predicts return to growth, thanks to measures taken by individual countries to stabilise single currency union
The head of the International Monetary Fund has fuelled hopes that the European financial crisis is easing by predicting the region will grow this year.
Christine Lagarde said she saw the "beginnings of recovery" in the eurozone, currently in recession, as measures taken by individual countries and efforts to stabilise the single currency union started to pay off. "It's clearly the case that investors are returning to the eurozone, and resuming confidence in that market," Lagarde told BBC World Service on Monday.
Lagarde also predicted Greece would enjoy a better 2013 than expected, after "a huge and massive effort" to cut spending and reduce its deficit. "The country is going to turn out better results than what was even planned – but it has to continue doing a massive effort on collection of revenue and collection of tax," she added.
The IMF chief's comments echo optimism from the European Central Bank president, Mario Draghi, and EC president, José Manuel Barroso. They helped send the euro up to 83.28p against the pound, its highest level since April 2012.
Traders blamed the pound's weakness on fears that Britain was heading into a triple-dip recession, speculation that its AAA rating was flaky, and jitters over a referendum over Britain's membership of the EU.
"When you compare the 'positive contagion' in the eurozone, where sovereign borrowing costs continue to come down, with the potential for instability in the UK over its relationship with the EU, it may cause investors to limit their exposure to the pound," said Andy Scott of foreign currency exchange brokers HiFX.
There was further relief on Monday night as Standard & Poor's revised its outlook on two AAA countries, Luxembourg and Finland, to stable, from negative. Economic data shows eurozone industrial output fell by 0.3% in November, worse than economists had expected, and was 3.7% lower than a year earlier.
Howard Archer of IHS Global Insight said the figures showed the eurozone recession probably continued in the last three months of 2012. However, a rise in demand for heavy equipment, or capital goods, raised hopes for 2013.
Greece's leftwing opposition leader, Alexis Tsipras, clashed with Germany's foreign minister, Wolfgang Schäuble, at a meeting in Berlin. Schäuble argued that Greece had no alternative but to continue with austerity, while Tsipras insisted Europe needed new policies to encourage growth.
Speaking after the meeting, Tsipras said: "I told him that the austerity programmes have failed all over Europe and especially in Greece. Now we must deal with their impact: poverty, unemployment."
A spokesman for the German finance ministry said Schäuble had pressed Tsipras to give more support to Athens. "Minister Schäuble urged Mr Tsipras to back the path embarked upon."
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