BEIJING—A collapse of the euro zone wouldn't solve Europe's sovereign debt crisis, and the Continent's banks must be recapitalized, former International Monetary Fund Managing Director Dominique Strauss-Kahn said Monday.
Mr. Strauss-Kahn was speaking at a forum in Beijing in a rare public appearance after having sexual-assault charges against him dropped.
He told reporters that European banks are more willing to reduce lending than raise new capital to meet higher capital adequacy ratio standards—a development that is negative for the regional economy.
A fundamental solution to the debt crisis should be based on economic development and growth, and there shouldn't be excessive focus on austerity measures, he said, adding that the IMF's strategy for Greece hasn't been well adopted, which he said was "a pity."
Mr. Strauss-Kahn predicted that it will take a long time for the European Union to emerge from the crisis.
France and Germany need to compromise and come to an agreement on a plan to move forward, he said, adding that the relationship between the two countries' leaders isn't as strong as in the past.
Mr. Strauss-Kahn also said the global monetary system isn't working properly and needs to be improved, and that a functioning system depends on orderly cross-border capital flows.
He said the IMF should also consider adding more currencies to the basket that forms Special Drawing Rights, a kind of synthetic currency created by the IMF.
The current SDR basket includes the U.S. dollar, euro, Japanese yen and British pound.
The yuan is a "natural candidate" for inclusion in the SDR basket, but it must first float freely, he said.
"I don't know how long it will take," for the yuan to be included in the basket, he said.
He also said emerging economies, such as Brazil, India and China, should have higher quotas for financial contributions to the IMF and more voice on the IMF board, the fund's main decision-making body.
