Euro-zone finance ministers have agreed to seek a greater role for the International Monetary Fund and the European Central Bank in fighting the sovereign debt crisis after efforts to expand the bailout fund missed targets.
The finance chiefs of all 17 nations using the euro agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility, Luxembourg’s Jean-Claude Juncker told reporters late yesterday in Brussels after leading the meeting.
“It’s very important that the IMF globally will increase its resources either by raising its capital or by bilateral loans so that it can lend more money to euro-zone countries in need,” said Dutch Finance Minister Jan Kees de Jager. “If we open the IMF effort, that will be sufficient together with the leverage options in the EFSF.”
Belgian Finance Minister Didier Reynders said today as ministers gathered for a second day of talks that, while finance ministers will work on reinforcing the IMF, possibly contributing to a boost in its resources, the ECB will make its own decisions.
Finance chiefs have agreed on a plan to guarantee up to 30% of bond issues from troubled governments and to develop investment vehicles that would boost the EFSF’s ability to intervene in primary and secondary bond markets.
European heads of government are set to meet in Brussels on December 9, where Germany is expected to push for governance changes that would tighten enforcement of budget rules. The move might make it easier for the ECB to play a bigger role in supporting euro-zone nations, possibly by channeling loans through the IMF.
Leaders had originally planned to leverage the 440 billion-euro EFSF to reach 1 trillion euros, but though its capacity will be “very substantial,” Juncker said it will be less than the intended 1 trillion euros, and will be supplemented by the IMF. The ministers “agreed to rapidly explore an increase of the resources of the IMF through bilateral loans,” Juncker said, “so that the IMF could adequately match the new firepower of the EFSF and cooperate more closely with it.”
The issue still “needs to be discussed with the IMF,” said European Union Economic and Monetary Fairs Commissioner Olli Rehn. The Washington-based IMF currently has about $390 billion available for lending, which may not be enough to meet demand if the global outlook worsens, managing director Christine Lagarde has said.
Boosting the IMF’s resources may not be so simply, said Tony Fratto, former White House and Treasury Department spokesman under George W. Bush. “It will be very difficult if not impossible for the U.S. to contribute fresh resources to the IMF,” he said in an e-mailed comment. ECB Executive Board Member Juergen Stark has warned that the central bank cannot lend to the IMF because it is not a member.