Resistance for plans to strengthen IMF
Proposals to double the size of the IMF as part of a broader
international response to Europe’s debt crisis ran into resistance from
the United States and others, burying the idea for now and putting the
onus firmly back on Europe. The outlines of the plan, that had the
backing of several developing economies, emerged as G20 finance
ministers and central bankers met in Paris to discuss a world economy
under threat from European nations mired in debt.
A second day of talks on Saturday may produce more robust language on
the urgency of tackling the euro zone debt crisis, but little of
substance is likely to be inked in with an EU summit in nine day’s time,
the make-or-break moment.
A communique and round of closing news conferences are expected
around 11 a.m. EDT with other decisions set up for a G20 leaders’ summit
in Cannes on November 3/4.
One G20 source said emerging market policymakers backed injecting
some $350 billion into the International Monetary Fund.
US Treasury Secretary Timothy Geithner and his Canadian and
Australian counterparts poured cold water on the idea. The IMF’s
dominant shareholders, including the United States, Japan, Germany and
China, are content that the fund’s $380 billion worth of resources is
enough.
“They (the IMF) have very substantial resources that are
uncommitted,” Geithner said.
German Finance Minister Wolfgang Schaeuble agreed the euro zone debt
crisis was for Europe to solve, and expressed confidence that EU leaders
would produce a plan at the October 23 summit that would be convincing
for financial markets.
The United States is among countries keen to keep pressure on the
Europeans to act more decisively to end the two-year-old debt crisis
that began in Greece, but has since spread to Ireland and Portugal and
is lapping at Spain and Italy.
“The first priority here is for Europeans to put their own house in
order,” Australian Finance Minister Wayne Swan said.
Canadian Finance Minister Jim Flaherty also said the G20 should keep
up pressure on the euro zone on its “arduous” journey toward a solution
and not focus on IMF resources.
If minds needed concentrating further, Standard and Poor’s cut
Spain’s long-term credit rating, citing the country’s high unemployment,
tightening credit and high private sector debt, highlighting the risk of
a much larger economy than Greece coming under threat.French and German
officials are trying to put flesh on the bones of a crisis resolution
plan in time for the European Union summit.
Fears about the damage a default by Greece - and possibly others -
could inflict on the financial system have driven a confidence-sapping
bout of market volatility since late July, with global stocks falling 17
percent from their 2011 high in May.
Division
Unlike in 2009 when the G20 launched coordinated stimulus to pull the
world out of crisis, the rest of the world is chafing at Europe’s slow
response while Washington and Beijing are sparring over the yuan
currency.
The Franco-German crisis plan is likely to ask banks to accept bigger
losses on their Greek debt than the 21 percent spelled out in a July
plan for a second bailout of Athens, which now looks insufficient.
“It will be more, that’s more or less certain,” French Finance
Minister Francois Baroin said.
It should also lay out a system for recapitalising banks and plans to
leverage the euro zone’s 440 billion euros European Financial Stability
Facility to give it more punch. Schaeuble said European banks should be
helped, if necessary, with state means to strengthen their capital.While
the EFSF has the resources to cope with bailouts for Greece, Portugal
and Ireland, it would be overwhelmed by the need to rescue a bigger
economy such as Italy or Spain.
The most effective method would be to turn the EFSF into a bank so it
could draw on European Central Bank resources. Both Germany and the ECB
are opposed to that. Attention has turned to the idea of making the fund
more like an insurer.
For example, if the EFSF covered the first 20 percent of losses a
bank could suffer in case of a default - it could multiply its firepower
fivefold to over two trillion euros.
Role of IMF
G20 sources said most BRICS economies were in favour of bolstering
the IMF’s capital as a crisis-fighting tool.
“We have said this before and have conveyed this again, that if
emerging economies and the BRICS are called upon to contribute, we can
do it via the International Monetary Fund,” one of the sources said.
“India is open to it, China and Brazil are also okay with the idea.”
Another G20 source said the IMF would present a plan which had broad
support to its executive board to make short-term credit lines available
to fundamentally healthy countries hit by liquidity crises. It could aid
euro zone countries hit by the current crisis of confidence in the
bloc’s sovereign debt.
Any real progress on bigger goals such as setting parameters to
measure global imbalances and reining in speculative capital flows is
unlikely to come before a November 3-4 summit in Cannes, where France
passes the G20 baton to Mexico.
A French finance ministry source said that for Cannes, France hoped
to have two or three measures agreed for countries showing imbalances:
consolidation measures for those with high deficits and stimulus
measures for those with surpluses.
“We are going to try to make some progress and obtain, perhaps not
tomorrow or Saturday but by Cannes, a list of measures country by
country,” he said. “These must be measures which will have an impact on
the real economy.”
A separate G20 source said after preparatory talks late on Thursday
that China would commit to boost its consumption through a five-year
plan, via households and companies as well as infrastructure.
The G20 countries make up 85 percent of global output. An April G20
meeting placed seven large economies under review - the debt-burdened
United States, export driven China and the economies of France, Britain,
Germany, Japan and India.
Officials have said privately the aim was to get Beijing to discuss
the yuan, and China’s cooperation is essential to the success of the
process.
A G20 official said China would not commit to a quick liberalisation
of its yuan currency to help rebalance global growth, but would offer to
use expansionary fiscal policy to fuel domestic demand.
“No, they were pretty firm on that - there will be no progress,” the
official said. - Reuters |