Wednesday

29th Jun 2022

IMF euro rescue starts to unravel

  • IMF chief Christine Lagarde speaking at a recent conference on development (Photo: imf.org)

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

On Sunday (11 December), a member of the German central bank, Andreas Dombret, told Handelsblatt that his institution cannot be used for any covert funding of eurozone states through the back door of the IMF.

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"The money cannot migrate into some sort of special pot that is used exclusively for Europe. That would be a clear breach of the prohibition of monetary financing of states. The German Bundesbank has explicitly ruled this out," he said.

Dombret said the Bundesbank's share of such an IMF package would be €45 billion and is "inherently risky", as it would breach the €211-billion-ceiling imposed by the parliament on EU bail-outs.

A spokesman for German Chancellor Angela Merkel confirmed on Monday that the funding plan has to be sent to parliament, but could not specify if MPs will be merely informed about it or will get a chance to vote. Merkel is set to address parliament on Wednesday.

In the 9 December agreement, all EU leaders except the British prime minister agreed to "consider and confirm within 10 days" to supplement IMF funds by €200 billion. The money is supposed to come from bilateral loans from European national banks "to ensure that the IMF has adequate resources to deal with the crisis."

The statement adds that "parallel contributions from the international community" are welcome.

In Prague, Czech President Vaclav Klaus said his country should not participate in the IMF scheme.

"The Czech Republic itself lives with a deficit, which, as one can see, it is unable to eliminate. In this situation, it would be irresponsible to increase our debt by providing more loans to the extremely indebted countries, which would only allow for further postponement of real solutions," Klaus told Czech Radio on Monday.

The Czech contribution would amount to €3.5 billion - a sum deemed "very high" by the country's finance minister.

Polish officials in charge of co-ordinating talks among EU countries also noted that the end sum may be lower than earlier estimated.

"We don't know if it's going to be €200 billion. Maybe it will be a little less than that," said deputy foreign minister Mikolaj Dowgielewicz at a press conference in Warsaw.

He added that "a euro work group" has been set up and is drafting the inter-governmental treaty agreed to by 26 EU countries - leaving out the UK - at the summiy. The draft is due in January, Dowgielewicz said.

Deputy finance minister Ludwik Kotecki, also present at the news conference, said Poland has not decided how much it will contribute from its national bank to the IMF, dismissing rumours it may earmark €10 billion out of its national reserves of €74.3 billion.

The rough estimate is for the EU members outside the eurozone to contribute €50 billion, with the rest to come from the euro countries themselves.

EU countries already under an EU-IMF rescue plan are "not expected to pay" said Romanian President Traian Basescu after the summit deal on Friday, however.

Romania is under an IMF programme after taking a €20-billion loan in 2009. Latvia has just ended its rescue programme and Hungary is about to go for a new one, amid worsening economic conditions. Within the eurozone itself, Greece, Ireland and Portugal are under EU-IMF loan programs.

Estonia has also said it will not join the €200-billion scheme. "Estonia didn’t participate in the IMF capital boost in 2009 following the financial crisis and Europe is currently not counting on Estonia’s contribution," its financee ministry told Bloomberg on Tuesday.

Scepticism overseas

Speaking for the IMF itself, chief economist Olivier Blanchard has said the new agreement is "part of the solution, but it's not the solution."

"The commitment to give us €200 billion makes a major difference in the sense that we can now go out and talk to other countries and say: 'The Europeans have given us money, can you help?," Blanchard said a business conference in Tel Aviv on Sunday.

Reactions from governments around the world have been sceptical so far.

Japanese Finance Minister Jun Azumi on Tuesday urged Europe to make further efforts to convince markets, while expressing caution about any potential Japanese IMF contribution.

The United States and Canada have shown no interest in contributing to the IMF euro-rescue. President Barack Obama has repeatedly said that Europe has "enough resources" to deal with the problem on its own.

Only Russia has spoken well of the IMF plan. "We're considering this option. I don't have any final numbers to share with you but this is an issue that is being considered by my government," Russian ambassador to the EU Vladimir Chizov told reporters in Brussels on Monday.

For its part, ratings agency Moody's has said it will review ratings of all EU member states in the first quarter of 2012. Rival agency Fitch said the summit has failed to provide a "comprehensive" solution to the crisis.

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