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29th Mar 2024

EU hoping for IMF boost after firewall increase

  • IMF chief Lagarde welcomed the firewall boost, but Canada's finance minister says it's not enough (Photo: European Council)

EU ministers are hopeful their decision to raise the combined ceiling of two eurozone bail-out funds to €700 billion will be enough to secure an increase in contributions from the International Monetary Fund (IMF).

A two-day meeting of EU finance ministers in Copenhagen ended on Saturday (31 March) with renewed appeals to foreign countries to step up their contributions to the IMF war chest.

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"It's important to ensure the IMF has sufficient resources to play its systemic role in the global economy," Danish economy minister Margrethe Vestager told a press conference after the meeting.

She said the decision by eurozone ministers "is very important in this respect. What we are hoping for is an agreement in Washington" later this month when the IMF board is to decide on an increase in its own lending capacity.

IMF chief Christine Lagarde was quick to welcome the EU deal, suggesting this would pave the way for a boost in her institution's resources.

The combined ceiling of the eurozone bail-out funds, "along with other recent European efforts, will strengthen the European firewall and support the IMF’s efforts to increase its available resources for the benefit of all our members," she said in a press statement.

But Canada immediately poured cold water on the idea. It said the deal was insufficient and suggested IMF money should be used to rescue poor countries rather than the eurozone.

"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," finance minister Jim Flaherty told reporters in Toronto on Friday.

The IMF currently has a lending capacity of $380 billion and aims to boost its coffers to cover an estimated $1 trillion in funding needs over the next two years. But getting countries like Brazil, China, India and even the US and Canada contribute to that increase when part of the money is to be channelled back to the eurozone is proving difficult.

Eurozone ministers on Friday re-affirmed their commitment to pay €150 billion in bilateral loans to the IMF, but non-euro EU countries who should come up with another €50 billion have so far failed to pledge exact figures. The UK is particularly reluctant to contribute.

In addition, the leaders of Brazil, Russia, India, China and South Africa last week warned that the only way they would agree to an IMF increase is if the voting system - currently favouring Europeans and Americans - is changed.

Meanwhile, Financial Times columnist Wolfgang Munchau discouraged non-European countries from boosting the IMF reserves because the eurozone firewall is still not big enough.

"The G20 should tell the eurozone that Friday’s deal is unacceptable. It is unreasonable to expect the rest of the world to make up the rest, especially given the negative impact of the eurozone’s austerity programmes on the rest of the world. The G20 should instruct the eurozone to return to the negotiating table."

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