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3rd Dec 2022

IMF looking for extra cash to stem euro-crisis

  • IMF chief Christine Lagarde will seek extra funding (Photo: International Monetary Fund)

The US-based International Monetary Fund (IMF) is seeking an extra $500 billion (€388bn) to help stem the eurozone crisis, with world growth forecasts slashed once more Wednesday (18 January).

Directors of the IMF on Tuesday agreed to look for supplementary resources, as requested by their French chief Christine Lagarde, amid increasing worries over the global impact of the euro crisis.

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"The biggest challenge is to respond to the crisis in an adequate manner and many executive directors stressed the necessity and urgency of collective efforts to contain the debt crisis in the euro area and protect economies around the world from spillovers," Lagarde said in a statement.

"To this end, fund management and staff will explore options for increasing the fund's firepower, subject to adequate safeguards."

An IMF statement on Wednesday said the institution wants to raise "up to $500 billion in additional lending resources," to cover its financing needs of about $1 trillion over the next few years.

The source of the new funds remains unclear, however.

Informal talks on how much money could be raised from non-euro economies such as Brazil, India and China have been going on since December, but to little avail.

The IMF currently has about €300 billion in available funds, a sum considered far too low to contain the deteriorating euro crisis if Italy and Spain ever ask for a bail-out.

In December, EU leaders pledged to cobble together €200 billion in bilateral contributions to the fund.

So far, firm commitments from euro-area countries add up to only €150 billion, which are part of the €388bn the IMF is seeking to raise. The remaining non-euro countries are supposed to contribute around €50 billion, but the UK has said it will only put in its €25 billion share if other G20 countries also step up IMF contributions.

Speaking in Tokyo on Wednesday, British finance minister George Osborne said he had talked to his Japanese counterpart about boosting IMF resources.

"We talked specifically about the euro zone crisis and what we need to see from eurozone countries in dealing with that crisis," Osborne told reporters after the meeting.

Earlier this week, the British politician criticised eurozone governments for not doing enough to stem the crisis. "We haven't actually seen much evidence of the improved resources needed by the euro to actually provide confidence to the market that they will stand behind their own currency," he said in an interview on BBC radio.

He also insisted that London would only contribute to the IMF as part of a global effort from G20 nations.

"And we're very clear that this money is not a substitute for the eurozone providing resources to deal with its own currency. This money for the IMF is used to support countries not currencies," he said.

The US, the IMF's largest donor, has also been reluctant to contribute more to the fund, insisting that the euro area is wealthy enough to cope with the crisis on its own. Some US lawmakers are pushing to cut back their country's contribution, by revoking a $100 billion loan made to the IMF in 2009 for an emergency reserve. The US government was planning to use the reserve to meet its current commitments.

Meanwhile, the World Bank, another Washington-based lending body, on Wednesday made the sharpest downward revision of growth forecasts in three years, saying that a recession in the eurozone threatens the global economy.

The euro area may contract by 0.3 percent this year, compared with a previous estimate of a 1.8 percent gain, it said, slashing world growth to 2.5 percent compared to a 3.6 percent estimate seven months ago.

"The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome," it warned.

This story was updated on Wednesday at 9.45PM to include the IMF funding estimate of $500bn.

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.

Strike: Minimal disruption to EU summit

Brussels' main airport was working as normal and access roads to the EU capital were open on Monday despite a general strike in Belgium.

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