“The challenge Europe faces is within the capacity of the Europeans to manage, and the administration has been clear with our international partners that we are not seeking additional funding for the IMF,” Brainard said in prepared remarks. “IMF resources cannot substitute for a strong and credible European . . . response.”
Her remarks are part of a global tug of war over how to pay for Europe’s problems and insulate the world from the economic fallout if conditions worsen.
World economic officials agree more money should be set aside for the purpose. The IMF is seeking about $500 billion as a precaution in case the euro zone’s debt problems intensify.
But as officials head toward high-level economic meetings next week in Mexico, they have yet to resolve the issue of where the money should come from.
Domestic politics weighs on leaders in the United States and elsewhere. Even if the Obama administration wanted to provide more money for Europe or the IMF, it would be tough in an election year when U.S. government deficits are an issue and Republican presidential candidates are dismissive of helping Europe.
There are also worries about equity — why should the developing economy of India subsidize the advanced economy of Italy? — and technical concerns about the IMF becoming a conduit for spreading credit risk around the world.
U.S. officials argue that if the 17 nations of the euro area — collectively wealthy and anchored by major powers like Germany and France — pledged hundreds of billions of dollars to stemming the spread of the Greek financial contagion to other countries, investors would be reassured, and the crisis would be over.
Emerging giants like China have expressed a willingness to contribute more to the IMF, and they have a vested interest in seeing the European crisis fixed before it further drags down trading with the region. But they have largely taken their cue from the United States, the IMF’s largest shareholder, remaining on the sidelines and encouraging Germany and others in Europe to do more for themselves.
European officials are increasingly vocal that their own taxpayers feel tapped and that the world — and the United States — should up the ante.
“What we are seeing in Europe is not just a European crisis,” Luxembourg’s finance minister, Luc Frieden, said in Washington this week, repeating an argument often heard in Europe that if not for the deep round of financial problems that began in the United States in 2008, Europe would not be in its current state. European governments were forced to borrow in response to that previous crisis, contributing to the current public debt burden, the argument goes. And the region’s financial companies were stuck with large amounts of bad loans, contributing to the current troubles in Europe’s banking system.