IMF warns of eurozone 'spiral' as banks take cover

Europes stock markets mostly rode out Standard and Poors downgrade of several eurozone players when they reopened stable on Monday, but the single currency itself remained under pressure.Meanwhile, in a sign of trouble to come, European banks stowed record sums in the ECB for safe keeping and a top IMF official warned the eurozone faces a downward spiral if it fails to get its governance in order.Frances President Nicolas Sarkozy received a boost when Moodys declined to match rival agency S&P in stripping Paris of its triple-A credit rating headed for crisis talks in Spain with clouds gathering.And Paris was further buoyed when it successfully sold 8.59 billion euros in short-term bonds paying a lower rate of interest than at a previous similar auction despite the loss of its top-line rating.An investment is rarely risk free, which is why it is often profitable. But a risk free investment does exist; thats an investment in the sovereign wealth of our country, said French finance minister Francois Baroin.Eurozone banks, however, took a more gloomy view of the situation.They put 493.3 billion euros ($623.7 billion) on 24-hours deposit with the European Central Bank overnight Sunday, topping a record set on Friday of 489 billion euros and highlighting fears of a credit crunch.Meanwhile, IMF First Deputy Managing Director David Lipton warned Asian finance and banking chiefs meeting in Hong Kong of trouble ahead.Europe could be swept into a downward spiral of collapsing confidence, stagnant growth, and fewer jobs, he said. In todays interconnected global economy, no country and no region would be immune from that catastrophe.European leaders are due to meet on January 30 to agree a new fiscal pact to coordinate deficit reduction programmes and attempt to reassure the bond markets that they are on top of the sovereign debt crisis.But Fridays S&P downgrade of nine European economies and stalled talks between private lenders and debt-wracked Greece have raised fears that the markets will not be content to wait until governments provide answers.The agencys decision points to inadequate governance within the eurozone as a risk factor, Italys Prime Minister Mario Monti told journalists after meeting the European Unions President Herman Van Rompuy.Greece promised to resolve its disagreements with creditor banks to allow for an orderly haircut on its debt, rather than running the risk of a hard default that would surely trigger market panic.The discussions which are ongoing have I think helped us to reach a point, which is close to an agreement, but some further reflection is necessary on how to put all the elements together, Prime Minister Lucas Papademos told CNBC.