G20 leaders insist no more IMF cash unless eurozone boosts financial firewall
Published 27/02/2012 | 05:00
THE world's leading economic powers said they would not stump up more cash to fight Europe's debt crisis until the eurozone members increase their own contributions, in a move that piles pressure on this week's Brussels summit.
A communique agreed by G20 finance ministers in Mexico City last night said a decision by eurozone leaders to boost their own firewall was "essential" before any more external resources were allocated via the International Monetary Fund (IMF).
"Euro area countries will reassess the strength of their support facilities in March. This will provide an essential input in our ongoing consideration to mobilise resources to the IMF," the official said, quoting from the draft.
George Osborne, the Chancellor, said: "The rest of the world will only consider extra resources for the IMF once the eurozone themselves contribute more to supporting their own currency. We have to see the colour of the eurozone's money first – and, quite frankly, that hasn't happened. Until it does, there's no question of extra IMF money from Britain or probably anyone else."
G20 finance ministers did agree that any extra IMF funding would come via bi-lateral loans. Christine Lagarde, managing director of the IMF, added: "G20 countries must now strengthen resilience to further shocks that could result from still fragile financial systems, high public and private debt, and higher world oil prices."
The failure to reach an agreement on extra funds adds yet another delay in the tortuous process of trying to shore up the eurozone. It also dashes a timetable set out in Cannes in November when G20 leaders proposed boosting the IMF's war chest by as much as $600bn (£378bn). The leaders had hoped the deal would be approved by the G20 finance ministers this weekend.
The G20 communique added: "We are reviewing options to ensure resources for the IMF could be mobilised in a timely manner."
A spat between America and Germany highlighted the growing impatience with eurozone members in the rest of the world. Tim Geithner, the US Treasury Secretary, used his G20 speech to demand bigger efforts from eurozone leaders to solve the crisis.
"I hope we're going to see, and expect we'll see, continued efforts by Europeans to put in place a stronger and more credible firewall," he said. "The IMF can't move forward without more clarity on Europe's own plans."
The Canadian finance minister, Jim Flaherty, said eurozone leaders should not "leave countries hanging out there with austerity programmes and negative economic growth. That's a dead end. We need to see a more comprehensive eurozone plan for their countries."
European leaders are under pressure to combine the firepower of the two bail-out funds they've already established, the European Financial Stability Facility (EFSF) and its successor fund, the European Stability Mechanism (ESM), and unleash the full powers of the European Central Bank by allowing it to become the lender of last resort.
Germany's Wolfgang Schaeuble fired back: "Let me be clear. It does not make any economic sense [to take measures] which would neutralise the interest risk in the eurozone, nor endlessly pumping money into stability funds, nor starting up the ECB printing press."
Mr Schaeuble insisted the rescue efforts were adequate. "I dare to say that Europe has done its homework," he said, claiming the reduction of eurozone bond yields in recent weeks "show we're on the right course".
The German Bundestag kicks off another roller-coaster week with a vote today on the €130bn (£110bn) bail-out that was agreed by leaders last week. G20 finance ministers said in the communique they welcomed the deal which included the biggest sovereign bond restructuring in history.
The G20 also used the communique to warn that "growth expectations for 2012 are moderate and downside risks continue to be high".