Govt guarantees in financial crisis now unavoidable

WASHINGTON (Reuters) - Government guarantees of financial liabilities is unavoidable at this stage of the credit crisis, the head of the International Monetary Fund said on Friday as the U.S. weighs guaranteeing billions of dollars of bank debt to calm markets.

"This means not only retail bank deposits but probably also interbank and money market deposits, so that activity may restart in these key markets," IMF Managing Director Dominique Strauss-Kahn told a conference.

"Of course, such a step should be temporary and include safeguards such as heightened supervision and limits on deposit rates offered," he added.

Strauss-Kahn said the private sector could not restore confidence on its own, and neither will economic policy actions nor piecemeal measures.

"What is needed is government intervention which is clear, comprehensive and cooperative between countries, Strauss-Kahn stressed. "We need more coordination," he urged.

"Financial institutions now span many countries and credible rescue plans must be consistent across many jurisdictions."

In particular, Strauss-Kahn pointed at more coordination among EU members states, saying, "There is no domestic solution to a crisis like this one."

As a former French finance minister, Strauss-Kahn said he understood how difficult it is to reach consensus and make decisions but he urged Europeans to set aside their differences.

"I do not underestimate the problems," he said.