The rising number of bad loans – both mortgage loans and those to businesses – and the reconfiguring of the banks so that they can lend profitably to support growth are the two main challenges to the Irish economy, according to the Central Bank’s second annual Macro-Financial Review, the Irish Times reported. The report, which assesses the strengths and weaknesses of all areas of the Irish financial system, states that the greatest single risk to the domestic economy is “the health of banking system and its ability to support the real economy”.

The International Monetary Fund urged the U.K. government to counter the effects of its austerity program by raising spending on infrastructure projects to avoid long-term damage to the nation's growth prospects, The Wall Street Journal reported. Launched in 2010, the austerity program is the government's cornerstone policy, and Chancellor of the Exchequer George Osborne has indicated he won't change course. The IMF had been a backer of the plan, allowing Mr. Osborne to use the fund's approval to validate his measures to improve the country's public finances.

Germany has agreed to give jobs or apprenticeships to about 5,000 young unemployed Spaniards every year, under a deal signed by labour ministers from both countries in Madrid on Tuesday, the Financial Times reported. The deal reflects rising concern in Berlin and other European capitals about a looming social crisis in countries such as Spain, where the rate of youth unemployment now stands at 57 per cent. But it also highlights Germany’s growing need for qualified workers, which is fuelled both by demographic changes and by the recent strong performance of the German economy.

Italy is considering allowing older workers to reduce their work hours while mentoring younger employees as a way to bring down youth unemployment, which is a growing scourge across Europe, The Wall Street Journal reported. Labor Minister Enrico Giovannini said that he planned this week to discuss the idea of "generational handoff" contracts with union leaders, who so far have been strongly supportive.

Swedish prosecutors have questioned the former head of bankrupt car maker Saab and two others in an investigation into suspected tax offences relating to the running of the company, officials said on Tuesday, Reuters reported. Prosecutors are looking into allegations that executives at Saab, which collapsed in 2011, obstructed proper tax checks over the years 2010 to 2011, a turbulent time for the company, when it was sold by General Motors to small Dutch sports car maker Spyker, and when problems which led to its collapse emerged.

Since the financial crisis hit Europe in 2008, few issues have proved as divisive as deciding how to protect bank deposits, The Wall Street Journal Brussels Beat blog reported. A proposed European Union law that would force states to build deposit-guarantee funds has been stuck in the bloc's decision-making process for almost three years. And in the countries where they exist, the funds remain far too small to cover the €100,000 ($129,000) per bank account they are supposed to insure. Until this year, the deposit-guarantee funds of European countries weren't seriously tested.

Europe faces a decade of stagnation without “sustained and significant reforms,” Mark Carney, the incoming governor of the Bank of England, warned Tuesday. Mr. Carney, currently Canada’s top central banker, said Europe can draw lessons from Japan on the dangers of taking half measures, The Wall Street Journal Real Time Economics reported. It’s been almost six years since the global financial crisis, but Europe remains mired in recession, fiscal austerity, low confidence and tight credit conditions restraining economic activity, he said.

The International Monetary Fund is recommending short-term stimulus for much of Central Europe, where economies are going through their roughest patch in years and the recession in the euro zone has dampened hopes for a quick recovery, The Wall Street Journal reported. In the region, Czech Republic's economy is shrinking at ever-faster rates and Hungary is teetering on the brink of another recession. Poland, the largest of the three, is nearly stagnant after years of robust growth.

All the pieces of legislation concerning insolvency will be brought together into one Insolvency Code, and the Romanian Justice Minister Robert Cazanciuc plans to send the draft law of this code to the Government this summer, Romania-Insider.com reported. Cazanciuc cited the unhappiness in the legal system caused by the need to make decisions based on several laws, and the high number of insolvencies recorded in recent years. When creating the Insolvency Code, the ministry will also debate it with representatives of the business environment, the minister said.

A Swedish prosecutor says three former executives of automaker Saab Automobile AB have been arrested on accounting fraud charges, the Associated Press reported. Prosecutor Olof Sahlgren says the three are "suspected of aggravated attempts to avoid tax controls" by allegedly falsifying parts of Saab's accounts between 2010 and 2011 - a crime that carries a sentence of up to four years in prison. Sahlgren wouldn't identify the three, who worked for Saab while it was owned by Dutch luxury car maker Spyker, which had bought the Swedish company off General Motors.