Brussels, 02/04/2012 (Agence Europe) - Europeans are hoping that increasing the eurozone's backstop to €700 billion will be enough to get its international partners to provide it with more cash from the IMF. “The firewall looks to us as being absolutely credible”, Vitor Constancio, the European Central Bank vice president, said on Saturday 31 March after the ECOFIN Council meeting in Copenhagen. The day before, Jörg Asmussen, a member of the ECB's Executive Board, said that Europe could now go to Washington having carried out its work, but warned that the bailout meant nothing if the countries in question did not continue with budget consolidation and failed to reform their economies. Euro Commissioner Olli Rehn said the eurozone had answered the calls of G20 and the BRICs (Brazil, Russia, India and China). Confident that the IMF would decide at the April meeting of its management committee to provide more cash, Rehn said that eurozone countries had agreed to pledge a further €150bn to the IMF.
The European Commission had been calling for a much bigger increase in the bailout fund, saying that €700bn was unlikely to be enough to win over international partners. In Copenhagen, it was the “minimalist” German vision that won out.
The EU finance ministers decided that the European Stability Mechanism, which comes on stream in July, will be able to raise €500bn of fresh cash, and there is also the €200bn pledged already by the European Financial Stability Facility to Ireland, Portugal and Greece (see EUROPE 10586). Germany's finance minister, Wolfgang Schäuble, said: “There is no sum with which you can convince financial markets.” Germany is the leading contributor to the backstop and is reluctant to open its purse, thus increasing the pressure on struggling eurozone nations to cut spending and pursue structural reforms.
The talks between Europe and its financial partners are likely to be tense. The Canadian finance minister, Jim Flaherty, has already said that the IMF's job is to help poor countries, not European countries that are some of the richest on the planet. At a meeting last week, the BRICs said that any new contribution they might make would have to be accompanied by a change in the way decisions at the IMF are made. IMF head, Christine Lagarde, called earlier this year for a US$380bn increase in the IMF's funds, to more than a trillion in total. (MB/transl.fl)