IMF pushes Europe to do more to fight debt crisis
By Howard Schneider,
The International Monetary Fund is pressing Europe to commit $500 billion more to battle its financial crisis, putting the onus on regional giants such as Germany to use more of their own cash for the euro’s rescue.
The move aligns the IMF with the Obama administration in insisting that Europe’s crisis management remains inadequate, and that the region — wealthy by world standards but suffering from slow growth and high debt — needs to do more to help itself.
The money would add heft to an existing bailout fund, the European Financial Stability Facility, established 18 months ago as a cornerstone of Europe’s crisis plan but considered too small to prop up major countries such as Italy and Spain should they need help. Throughout the euro’s nearly two-year-old troubles, Germany and other better-performing nations have tried to limit how much of their own taxpayers’ money is used to fight the crisis.
In high-level talks this week, agency officials estimated that a worsening of Europe’s problems might require a response costing $1 trillion. This is money that could help nations within the euro zone but would also provide a financial backstop for others around the world likely to suffer from declining economic growth, collapsing trade or a withdrawal of bank credit and investment.
In an e-mailed statement, the IMF on Wednesday said it would seek to raise about half of that from its members to help countries worldwide. That sum would include about $200 billion already pledged by European nations to the IMF. The amount would not necessarily represent paid-in contributions, but might be in the form of promised loans that could be drawn on only if the fund’s existing resources are stretched.
The IMF has about $390 billion available to lend.
Details of the additional IMF funding are to be debated at upcoming meetings of finance ministers from the world’s major economies.
Officials familiar with the deliberations said fund officials and board members were clear that Europe should come up with the other $500 billion on its own.
The debate among IMF board members stressed “the importance of European firewalls and other policies being sufficiently strong to respond to the crisis in the Euro Area,” IMF Managing Director Christine Lagarde said in a written statement.
The United States, the IMF’s major shareholder, has pressed a similar line of argument for months.
The IMF should serve “only as a supplement to Europe’s own efforts,” Treasury Department spokesman Kara Alaimo said in an e-mailed statement. “Europe has the capacity to solve its problems. The IMF cannot substitute for a robust euro area firewall.”
The Obama administration has said it will not increase its contributions to the IMF beyond amounts already pledged to boost the agency’s firepower to help it respond to the 2009 financial crisis. The IMF has already committed record-setting amounts of money for rescues of Greece, Portugal and Ireland, leading officials from some developing powers, such as India and Brazil, to regard the agency as more liberal in its approach to helping the developed world than when it responded to crises in Asia and Latin America.
The push from the IMF for Europe to put more cash behind its crisis response highlights the region’s ongoing inability to get ahead of a problem that has roiled world markets for two years now and has pushed the region toward a new recession.
In an effort to contain the amount of local taxpayers’ money put at risk in bailouts of Greece and other nations, euro-zone leaders created fear that they would not produce the funds needed to stand behind larger nations such as Spain and Italy.
European bond and stock markets have given some signs the crisis may be easing: Recent bond sales, for example, have produced lower rates than late last year.
But major stumbling blocks remain. Italy, Spain and other governments need to raise hundreds of billions of dollars from investors in coming months to finance their operations.
Plus, there is a growing sense that Greece is likely to default on its international bond payments.