Struggling European Union nations in eastern and central Europe should consider replacing their currencies with the euro even if it means doing so without formally joining the euro zone, the International Monetary Fund (IMF) suggested.

The suggestion, revealed by the Financial Times reported on Monday, was made by IMF in a confidential report about a month ago.

In such circumstances, the European Central Bank could ease its entry rules to allow nations to join as quasi-members of the euro area without representation on the European Central Bank board, the IMF said.

"For countries in the EU, euro-ization offers the largest benefits in terms of resolving the foreign-currency debt overhang [accumulation], removing uncertainty and restoring confidence," the IMF reportedly said.

"Without euroization, addressing the foreign debt currency overhang would require massive domestic retrenchment in some countries, against growing political resistance," the report said.

Disclosure of the confidential report, prepared about a month ago, could reignite a fierce debate over strategies to assist central and east Europe, the story said.

Even though global leaders hailed last week's G20 summit as a success, eastern Europe's challenges remain, the report said, adding that amid deepening recession, Ukraine and Latvia, two states already in IMF programs, have in recent days balked at approving IMF-mandated reforms.

A third, Hungary, is struggling to create a government capable of implementing reforms.

The IMF report was compiled to support a campaign by the fund, the World Bank and the European Bank for Reconstruction and Development to persuade the EU and eastern European states to back a region-wide anti-crisis strategy, including a regional rescue fund. The campaign failed amid widespread opposition from both west and east European states.

The IMF, which forecasts a 2.5 percent decline in regional gross domestic product in 2009, estimates that "emerging Europe" including Turkey must roll over US$413 billion in maturing external debt in 2009 and cover US$84 billion in projected current account deficits.

The report estimates that "the financing gap" money needed from international financial institutions, the EU and governments will be US$123 billion this year and US$63 billion next, or 186 billion dollars in total.