LONDON, May 12 (Reuters) - Countries within the euro zone should implement a new system of cross-border budgetary co-ordination, the managing director of the International Monetary Fund told the Financial Times in an interview.

Dominique Strauss-Kahn also proposed introducing short-term fiscal transfers between euro zone countries as a way of staving off another financial crisis, the FT reported in its Wednesday edition.

What you need is stronger surveillance and tools to organise transfers from one part of the area to other parts, Strauss-Kahn told the paper.

Strauss-Kahn has previously called for improved economic coordination between member states to avoid large imbalances building up within the system. [nLDE62S0Q2]

Greece's debt crisis has highlighted the weakness of mechanisms which are supposed to show whether European Union governments are sticking to the bloc's budget rules.

The true size of Greece's huge budget deficit came to light only after the current government came to power last year. As a result investors dumped Greek government debt, fearing Athens would default.

This in turn led to fears that other euro zone governments with big budget deficits and high debt levels would go the same way, forcing the EU and IMF to launch a $1 trillion rescue package at the weekend.

(Reporting by Caroline Copley; Editing by Kim Coghill)

International Monetary Fund European union