US rejects $350bn funding plan for IMF
Paris, October 15, 2011
Proposals to double the size of the IMF as part of a broader international response to Europe's debt crisis immediately ran into resistance from the United States and others, burying the idea for now and firmly putting the onus back on Europe.
The outlines of the plan, that had the backing of several developing economies, emerged as G20 finance ministers and central bankers began meeting in Paris to discuss a world economy under threat from European nations mired in debt.
One G20 source said some policymakers backed injecting some $350 billion into the International Monetary Fund. Other options under consideration included loans, special purpose vehicles and note purchase agreements.
US Treasury Secretary Timothy Geithner wasted no time in shooting the idea down.
The IMF's dominant shareholders, including the US, Japan, Germany and China, are content that the fund's $380bn worth of resources is enough. Canada and Australia also voiced opposition.
'They (the IMF) have very substantial resources that are uncommitted,' Geithner said.
The US is among countries keen to keep pressure on the Europeans to act more decisively to end the two-year-old debt crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.
The finance ministers of France and Germany, under pressure from the rest of the world to act in concert, made a fresh commitment to have a plan for the euro zone in place before a summit of G20 leaders in Cannes on November 3 and 4.
Speaking after a lunch meeting with President Nicolas Sarkozy, French Finance Minister Francois Baroin said: 'We will continue our discussions in the coming days but we have already come to some agreements that will be very important.'
French and German officials are trying to put flesh on the bones of a crisis resolution plan in time for a European Union summit on October 23.
Fears about the damage a default by Greece - and possibly others - could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 per cent from their 2011 high in May.
Canadian Finance Minister Jim Flaherty also said the G20 should keep up pressure on the euro zone on its 'arduous' journey towards a solution and not focus on IMF resources.
Unlike in 2009 when the G20 launched co-ordinated stimulus to pull the world out of crisis, the rest of the world is chafing at Europe's slow response while Washington and Beijing are sparring over the yuan currency.
The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21pc spelled out in a July plan for a second bailout of Athens, which now looks insufficient.
Whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Ireland, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain.
The euro zone recorded an external trade deficit of 3.4 billion euros ($4.7 billion) in August, an improvement from the same month last year, official figures showed yesterday.
The 17-nation single currency area had posted a deficit of 6.3bn euros in August 2010, according to Eurostat data agency.