European quest for more IMF money runs into opposition
RENEWED EUROPEAN demands for a rapid rise in IMF resources to battle the debt crisis ran into headwinds at the weekend as Canada questioned the need for an increase.
As a two-day EU meeting in Copenhagen broke up on Saturday, a succession of European finance ministers said the deal to boost the euro zone “firewall” to €800 billion should prompt the IMF’s global backers to follow suit at its spring meeting in Washington this month.
This commitment is at the low end of the range mooted by the European Commission, which warned last week that such an outcome was likely to “fall short of providing the necessary credibility to unlock an increase in IMF resources”.
Canadian finance minister Jim Flaherty said the euro zone firewall increase was insufficient and suggested it was not appropriate to provide international aid to Europe to tackle its problems.
“We think the primary role of the IMF is, and ought to be, supporting the poorer countries of the world, and those countries do not include European countries . . . which are among the wealthier countries in the world.”
Although Mr Flaherty is a noted sceptic about Europe’s effort to overcome the crisis, his remarks underscore the difficulty of agreeing a plan to increase IMF firepower. The fund now has a lending capacity of about $380 billion (€285 billion) and estimates there are about $1 trillion in “uncovered” financing needs over the next two years.
European ministers resolved last December to provide €170 billion for the IMF’s expansion plan, but Britain’s refusal to provide an expected €30 billion left the deal short of the €200 billion target.
“If the IMF takes precautions to prevent possible contagion or threats to the world economy, then Europe for its part will make a decisive contribution,” German minister Wolfgang Schäuble said in Copenhagen.
The December pledge comprised €150 billion in bilateral loans from euro zone countries, the biggest from Germany and France. Large contributions were also promised by Italy and Spain, who are still trying to convince doubters that they can settle their frail finances without bailout aid.
Last week the leaders of the “Brics” group of developing countries – Brazil, Russia, India, China and South Africa – said the drive to expand the IMF’s lending power “will only be successful” if all members have confidence in the reform of its voting system.
This was a reference to changes mooted in 2010 giving developing countries more voting rights, which has been resisted by the US. At the same time, the US has said it will be involved in the effort to increase the resources of the IMF.
European ministers said the Copenhagen deal meant they had fulfilled their side of the bargain and it was now up to the global community to do likewise. “Europe has done its part,” said French minister François Baroin.
Danish economics minister Margrethe Vestager, host of the meeting as part of her country’s presidency of the EU, said Europe anticipated an agreement this month. “This is the time for increasing IMF resources. It is in the interest of all countries.”
Swedish minister Anders Borg said it was essential to reach a decision in Washington. “We are seeing a stabilisation of the crisis but it would be strengthened further if we have a broader, wider and stronger firewall.”