Cannes, 04/11/2011 (Agence Europe) - On Friday 4 November, the G20 summit in Cannes decided to boost International Monetary Fund resources and although no beneficiaries were mentioned, it is likely that this is to provide the eurozone with cash to alleviate the sovereign debt crisis and is connected with the boosting of the coffers of the EFSF, the eurozone's bailout fund (European Financial Stability Fund).
The president of the European Council said on Friday 4 November at the end of the summit that the G20 was prepared to give the IMF extra resources very rapidly if required. In the final statement, the G20 leaders pledge to ensure the IMF has the resources needed to continue to shore up the financial system and pledge to ensure that substantial resources can be mobilised in a timely fashion. Van Rompuy said there were three options when it comes to boosting the IMF's coffers, namely contributions from individual countries, special drawing rights and voluntary contributions to a special vehicle set up within the IMF itself. He said a number of countries said during the negotiations that they were prepared to contribute. A G20 finance summit will draw up the tangible details by February 2012 (under the Mexican Presidency of the G20).
Is the increase in the IMF resources connected with the EU's boosting of the EFSF's firepower? The decision to boost the IMF's resources concerns IMF members in general, said the president of the European Commission, José Manuel Barroso, adding that the final statement did not mention the eurozone. He said the move to increase the IMF's cash “means we are increasing the global firewall against contagion. It will allow us to act against crises wherever they occur, in a coordinated and comprehensive manner.” The French president, Nicolas Sarkozy, drew closer links, however, saying that the way the IMF and Europe could work together to expand the EFSF's lending capacity needed to be considered , and the IMF director general, Christine Lagarde, said that the IMF lends to countries not entities and would not be lending to the bailout fund.
In a press release, the G20 backs the IMF's move to set up a new “precautionary and liquidity line” to provide greater short-term, flexible, finance to countries whose finances are good but which are having to deal with economic or financial crises in other countries. Lagarde said that the IMF currently has enough resources to meet all requests for financial aid.
At the end of last month, the 17 eurozone nations decided to increase the EFSF's firepower by introducing leverage (borrowing) to expand the fund's lending capacity by four or five times (see EUROPE 10483). Two combinable options are favoured - allowing private investors buying the bonds of struggling countries to take out insurance from the EFSF against default risk and boosting the EFSF's funding mechanisms by pooling public and private investment through special investment vehicles.
Both options are on the table and will be worked upon, explained a European negotiator, pointing out that legal issues needed to be investigated and the market needed to be tested before any decisions were made. In Cannes, the Spanish finance minister Elena Salgado said that work would intensify ahead of the meeting of the Eurogroup on Monday 7 November to ensure the EFSF could be expanded before the end of the month, although Europe has set itself a 4 December 2011 deadline (the date when the Greek referendum was due to take place). A European expert said on Friday that the fact that the referendum has now been called off does not mean that work should not continue apace. (MB/transl.fl)