Thursday

1st Jun 2023

EU to channel €150bn to IMF for its own rescue

  • Germany does not want the future fund to run in parallel with the current one (Photo: Stephanie Jones)

EU leaders are discussing an increase of Europe's contribution to the International Monetary Fund by €150 billion, which in turn could be used to rescue troubled euro-countries.

Central banks in the 17 states of the eurozone may increase their contribution to the IMF by a total of €150 billion, a senior EU official told reporters in Brussels under condition of anonymity. Another €50 billion may come from other non-eurozone countries, the source added.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Half the sum would go to troubled eurozone countries while the other €100 billion would be made available to rescue programmes all around the world.

The IMF solution is intended circumvent opposition from Germany and the European Central Bank to the latter intervening directly to assist countries such as Italy and Spain, the third and fourth largest economies in the euro area.

Speaking to reporters on his way into the meeting, Swedish Prime Minister Fredrik Reinfeldt said his country - a non-euro member - is "absolutely" in favour of the IMF solution, because markets have "huge confidence" in the well-established financial institution. "It should be part of the solution, alongside the eurozone rescue mechanisms (EFSF/ESM)," he added.

Danish leader Helle Thorning-Schmidt told EUobserver that her country, which also lies outside the single currency, will contribute 40 billion kroner, or €5.3 billion, to the IMF as well. She said her government had already told the national central bank to be ready. "For us it is a gesture. We want to show we take our responsibility seriously," the prime minister said.

Leaders at the two-day summit are also trying to overcome German resistance to lifting a €500 billion cap on lending from the existing and future bail-out funds for the eurozone. Berlin has agreed to advancing by one year the bigger and permanent bail-out fund (ESM), which should have come into being mid-2013, but is adamantly opposed to the fund being awarded a banking licence. "We think that would be going in a completely wrong direction," one senior German official told media on Wednesday.

The official confirmed that talks on how to boost the IMF's lending power were ongoing, but dampened expectations that a deal would be reached over the weekend.

The legal wrangling about about a possible EU treaty change demanded by Germany on deficit sanctions and rules have somewhat overshadowed ongoing talks on how best to use bail-out mechanisms and the IMF in saving the euro.

Efforts to boost the current bail-out fund, the European Financial Stability Facility, a €440 billion "patchwork of loan guarantees" as the German official put it, flopped last month after EU leaders failed to attract the hoped-for scale of investment from countries such China and Brazil.

The permanent fund (ESM), agreed upon last year when it became clear that the EFSF was insufficient, is still pending ratification in all 17 eurozone countries - a process leaders hope to fast-track.

But the Slovak experience, with its government collapsing earlier this year over the ratification of the law just enabling the ESM to be set up, indicates what hurdles still lay ahead.

ECB cuts rates, defies expectations

As EU leaders headed into a crunch summit, the European Central Bank cut interest rates and introduced a range of measures to aid Europe’s troubled banking system, but defied hopes that the institution would aggressively expand its government bond-buying programme.

The ECB unveiled a quarter-point cut to its rate, down to one percent.

As banks have increasingly been closed off from funding from each other and other sources, the sector has become addicted to liquidity provided by the central bank. However, fears have grown that they may be reaching the limit of what they can provide as collateral.

Responding to the problem, the ECB has now relaxed what it will accept as collateral against loans to banks.

In another move intended to ease the pressure on the sector, the ECB reduced the ratio of deposits the banks must park with national central banks from two percent to one percent.

However, the bank made no moves to boost its purchase of government debt in Italy and Spain, a development bank chief Mario Draghi hinted at last week when speaking the European Parliament.

Separately, the European Banking Authority announced the results of a fresh round of stress tests of the continent’s financial institutions, declaring that some 30 banks across 12 countries out of 71 tested, must recapitalise themselves to the tune of €114.7 billion by next June.

Spanish banks - hit by the worst funding shortfalls - must fill gaps totalling €26.2 billion, followed by Italian banks, which must plug a hole of €15.4 billion.

In Germany meanwhile, banks face a gap of €13.1 billion, a substantial increase on the €5 billion shortfall the EBA estimated in October.

EU looking to new €940bn bail-out fund

The EU's troubled bail-out fund, the EFSF, could have its lending capacity more than doubled to €940 billion to reassure markets that Italian and Spanish debt is safe.

EU states fail to cobble together €200bn for IMF

Eurozone countries on Monday agreed to pay €150bn to a special IMF fund but failed to reach their total ceiling of 200bn among all EU states, as pledged on 9 December, with Britain refusing to contribute to the euro-saving scheme.

IMF euro rescue starts to unravel

Days after leaders pledged to channel €200bn through the IMF to help rescue the eurozone, the German central bank, the Czech Republic and Estonia have come out against the idea. Japan, Canada and the US are also sending negative signals.

ECB: eurozone home prices could see 'disorderly' fall

The European Central Bank in its Financial Stability Review warned EU home prices could see a 'disorderly' fall as high mortgage rates are making houses unaffordable for households and unattractive for investors.

Adapting to Southern Europe's 'new normal' — from droughts to floods

Extreme weather events in recent months have worsened agricultural production in southern Europe, prompting concerns for authorities in Portugal, Spain, France and Italy. As countries will likely face dryer conditions, experts urge adaptation measures for the 'new normal'.

EU: national energy price-spike measures should end this year

"If energy prices increase again and support cannot be fully discontinued, targeted policies to support vulnerable households and companies — rather than wide and less effective support policies — will remain crucial," the commission said in its assessment.

Opinion

EU export credits insure decades of fossil-fuel in Mozambique

European governments are phasing out fossil fuels at home, but continuing their financial support for fossil mega-projects abroad. This is despite the EU agreeing last year to decarbonise export credits — insurance on risky non-EU projects provided with public money.

Latest News

  1. Europe's TV union wooing Lavrov for splashy interview
  2. ECB: eurozone home prices could see 'disorderly' fall
  3. Adapting to Southern Europe's 'new normal' — from droughts to floods
  4. Want to stop forced migration from West Africa? Start by banning bottom trawling
  5. Germany unsure if Orbán fit to be 'EU president'
  6. EU Parliament chief given report on MEP abuse 30 weeks before sanction
  7. EU clashes over protection of workers exposed to asbestos
  8. EU to blacklist nine Russians over jailing of dissident

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Stakeholders' Highlights

  1. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  2. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  3. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  4. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  5. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  6. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality

Join EUobserver

Support quality EU news

Join us