The International Monetary Fund has not given European policymakers "enough credit" for the progress made in restoring stability to the single-currency bloc, the head of the European Stability Mechanism said Friday.
"The IMF says that risks in Europe are higher now than six months ago, we don't believe that, I think the IMF is behind the curve here, " Klaus Regling, managing director of the ESM, told CNBC on the sidelines of the IMF's semi-annual meetings in Tokyo.
The IMF , in its latest "Global Financial Stability Report, " said despite the recent steps already taken to resolve the debt crisis, the "agenda remains critically incomplete , " adding that the euro zone is the biggest threat to global financial stability.
It also lowered its growth forecasts for the euro zone for 2012. It now expects the region to contract 0.4 percent, instead of the earlier estimate of 0.3 percent.
European policymakers have stepped up efforts to control the debt crisis with the European Central Bank announcing last month it would buy the bonds of those euro zone countries facing financial pressure once they applied to the region's bailout fund, the ESM.
The ESM, which was created to provide financial aid to troubled euro zone countries in return for fiscal reforms, was officially launched at a euro zone finance ministers' meeting on Monday, with an immediate fire-power of 200 billion euros ($258 billion).
While, the IMF acknowledged that the ECB's bond-buying program had restored some market confidence, it maintained that private investors still lacked conviction on peripheral European markets.
Rebutting these claims, Regling argued that while Europe still has a way to go before emerging from its debt crisis, it has made notable progress, which is being recognized by many investors. He cited Pimco, the world's largest bond fund, which announced last week that it has started buying Spanish and Italian government bonds.
Regling's comments follow remarks by Christine Lagarde , the head of the IMF, on Thursday that indebted countries should not be bound to tough budget deficit targets if the impact on growth is worse than anticipated.
Supporting euro zone leader's latest efforts to restore investor confidence, Jean-Michel Six, chief economist for Europe, the Middle East, and Africa at ratings agency Standard & Poor's, said the new framework put together by the ECB will go a long way in reassuring financial markets.
"It (the ESM) could be a very powerful way to reassure financial markets about the sustainability of the euro zone but of course for that to happen, we need to see it in action, " said Six.
The markets are awaiting a decision by Spain on whether it will ask for a bailout to alleviate pressure on its borrowing costs, particularly after S&P cut the country's credit rating to one notch above junk status.
(Read More: Spain Reluctance to Seek Bailout Justified: OECD .)
When asked whether the credit rating downgrade will increase the chances of Spain requesting a bailout, Six said, "Individual efforts by countries like Spain to restore their competitiveness and fiscal balances were offset by the fact that markets were starting to worry about sustainability of euro zone. This is a fundamental problem that you want to have removed."
Spain has been struggling with unsustainable borrowing costs, with the yield on the benchmark 10-year bond jumping to over 7 percent in July. While yields have eased to around 6 percent since, threat of a downgrade of its sovereign debt rating to junk status could add renewed pressure on borrowing costs.
—By CNBC's Ansuya Harjani