With a decision to expand its anti-crisis "firewall," the eurozone has thrown the ball firmly back into the court of other economic powerhouses who pledged more cash for the IMF if Europe stumped up first.
COPENHAGEN – With a decision to expand its anti-crisis "firewall," the eurozone has thrown the ball firmly back into the court of other economic powerhouses who pledged more cash for the IMF if Europe stumped up first.
After providing loans to help debt-wracked countries such as Greece, Christine Lagarde, head of the International Monetary Fund, has asked members to give her US$500 billion in extra funds for possible future eurozone bailouts. But at a fraught meeting of finance ministers and central bank chiefs in Mexico City in February, the leading and emerging economies in the group of 20 (G20), said they would only boost IMF funding if the eurozone first put its hand in its pocket.
After a month of wrangling and some German resistance, the eurozone Friday clinched a deal it claimed was worth more than one trillion dollars, even though 300 billion euros of that was in loans already pledged.
In fact, they raised the maximum lending capacity of their bailout pools too 700 billion euros, on a temporary basis, from 500 billion euros, prompting scorn from analysts who said it was insufficient and full of artificial padding.
European officials nevertheless judged they had done enough to unlock funds from other G20 members.
"I think now we Europeans can travel to the Spring meeting of the (World) Bank and the (International Monetary) Fund in Washington having done our homework on European firewalls," said Joerg Asmussen, a top member of the European Central Bank.
"I trust today's decision will pave the way for an IMF decision at the Spring meetings," said EU Economic and Monetary Affairs Commissioner Olli Rehn.
And although the boost to the new "firewall" was far less ambitious than many wanted, Lagarde seemed satisfied ahead of the crunch April 20-22 IMF meeting where the issue of fresh lending for the Fund will be discussed.
The deal "will strengthen the European firewall and support the IMF's efforts to increase its available resources for the benefit of all our members," she said in a statement.
The IMF's main lender, the United States, also hailed what Washington termed the eurozone's "unequivocal commitment to reinforcing their currency union."
While economists generally criticised the eurozone's firewall deal – with one comparing it to a "chocolate fireguard" – it was viewed probably sufficient to convince the likes of China and Japan to release more IMF loans. "By yielding to international pressure to raise its efforts, European finance ministers will probably be able to obtain additional commitments from the IMF and the G20 to complement the European rescue efforts at the G20 summit in Mexico in June," said Christian Schulz from Berenberg Bank.
"The idea is to have a double firewall: a European response (and I think that Europe has done its work) and an international response coordinated by the IMF with a raising of its resources," French Finance Minister Francois Baroin said.
"We are in favour of that. There will still be some more debates within the G20 on this question but we are going in the right direction," Baroin told reporters after the meeting.
The emerging powers of the G20 are demanding more than just money from the Europeans – they want more power at the IMF.
At a recent summit in New Delhi, leaders from the BRICS – Brazil, Russia, India, China and South Africa – made an urgent call for reform of the IMF to reflect their growing influence in the world economy.
And Baroin warned one should not assume that more funds for the IMF was a done deal.
Asked about Lagarde's initial response, he said: "It bodes well, but there are still a fortnight of discussions."
Germany, seeking not only to deal with the bloc's current debt problems butt to avoid future crises, wants expert watchdogs to oversee public spending by members of the European Union to prevent future Greek-like near-bankrupcy scenarios, Spiegel magazine said in its latest edition out Monday. – AFP