Brussels, 19/01/2012 (Agence Europe) - On Thursday 19 January, a spokesperson for EU Commissioner for the Euro Olli Rehn said that the European Commission strongly backed the increase in the International Monetary Funds resources that the IMF is calling for because it would send a clear signal to the markets by increasing the IMF's ability to shore up the economic system of all its members, not just the eurozone. The Commission spokesperson added that the extra cash would have a global dimension, particularly for the G20, because nowhere in the world would be spared if the sovereign debt crisis in Europe were to deteriorate further.
The IMF is planning to increase its resources by US$600 billion in the form of a safety net to help it deal with requests for financial aid of up to a trillion dollars in the next few years. “I welcome the recognition of the importance of ensuring adequate Fund firepower to help defuse the current global economic weaknesses and regional challenges. To this end, Fund management and staff will explore options for increasing the Fund's firepower, subject to adequate safeguards”, said IMF director general Christine Lagarde in a press release, after the IMF board examined the IMF's resource level on Tuesday 17 January. She added: “Many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the Euro Area and protect economies around the world from spillovers and excessive output/income contractions.”
Last month, the EU promised to provide US$200 billion of this new funding for the IMF, US$150 billion of it from the eurozone in the form of bilateral loans, despite the UK's reluctance. At the G20 summit in Cannes in November 2011, the EU considered the option of using some of the monies released under a deal to alter the relative weight and voting rights of IMF member countries (see EUROPE 10254). The United States has refused to make any extra contributions so the remaining cash may have to be provided by countries basking in huge capital reserves, like the emerging economies and oil-producing countries.
To convince emerging markets and the Middle East, Europe must take action to deal with its problems by boosting its bailout systems. Lagarde said: “Executive directors welcomed the recently announced commitment of European members to contribute to the Fund's resources, while stressing the importance of European firewalls and other policies being sufficiently strong to respond to the crisis in the Euro Area.” Olli Rehn's spokesperson said Europe was making use of the European Financial Stability Fund's leverage effect to borrow four times as much money, and was also speeding up the creation of the European Stability Mechanism. (MB/transl.fl)