European officials said Tuesday that they plan to appeal for deeper involvement by the International Monetary Fund in addressing the region’s debt crisis, an acknowledgment that their efforts to date have fallen short.
With international investors continuing to press on weak links in the euro currency union, European finance ministers said they would turn to the IMF to help supplement their emergency bailout fund.
Nov. 29 (Bloomberg) -- Europe's effort to expand its bailout fund to 1 trillion euros ($1.3 trillion) is falling short, forcing renewed consideration of a role for the European Central Bank in insulating Spain and Italy from the debt crisis, two officials familiar with the discussions said. Finance ministers are holding an initial discussion today on channeling ECB loans to cash-strapped euro nations through the International Monetary Fund. James Hertling reports on Bloomberg Television's “InBusiness With Margaret Brennan.”
Nov. 29 (Bloomberg) -- Steen Jakobsen, chief economist at Saxo Bank A/S, talks about efforts to resolve the European sovereign-debt crisis. He speaks from Hellerup, Denmark, with Owen Thomas and Linda Yueh on Bloomberg Television's "Countdown."
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At the latest in a series of late-night meetings, the euro-zone ministers approved efforts to expand the financial effect of the existing bailout fund. But they recognized that it was unlikely to attract enough private investment to provide emergency financing to large countries such as Italy and Spain, which must raise hundreds of billions of dollars in coming months.
So the ministers said they would push for an increase in IMF funds available to euro-zone countries. The idea is to use the agency as a sort of conduit, allowing wealthier countries such as Germany, or perhaps the European Central Bank (ECB), to provide money that could then be directed back to Europe.
The fund would oversee how the money is used, ensuring that Italy or other possible beneficiaries adhere to specific targets for reducing government deficits or making economic changes.
The euro-zone nations “agree to rapidly explore an increase in the reserves of the IMF through the use of bilateral loans,” Jean-Claude Juncker, head of the finance ministers group, said at the end of Tuesday’s meeting in Brussels. Olli Rehn, head of European economic and monetary affairs, said discussions with the IMF were underway and that European nations could be tapped for loans to the agency.
Discussion of a deeper role for the IMF came as the ministers completed work on the design of the bailout fund, the European Financial Stability Facility, which was set up a year and a half ago to backstop euro-region governments that have trouble raising money on world bond markets. Funding for the bailout fund from the euro zone’s 17 nations has fallen short as larger countries, such as Italy, have run into trouble. Italy, the third-largest economy in the euro zone, has seen its borrowing costs spike and on Tuesday they remained at unsustainably high levels.
Efforts to double or triple the bailout fund’s firepower by attracting outside investors also have stumbled.
The IMF on its own would have difficulty underwriting a bailout of a major nation such as Italy. Meanwhile, the U.S. government and others have resisted any increase in IMF funding to be paid for by the agency’s 187 member nations. Bilateral loans to the IMF — for instance, those from individual countries — would skirt that problem and have been used before to boost IMF resources.
The IMF did not comment on the reports out of Brussels.
The finance ministers’ gathering on Tuesday kicked off a critical round of talks at a time when the options are narrowing for averting a default by one of the euro-zone countries and a breakup of the currency union.