COPENHAGEN, April 2 (BSS/AFP) - With a decision to expand its anti- crisis "firewall", the eurozone has thrown the ball firmly back into the court of other economic powerhouses who pledged more cash for the IMF if Europe stumped up first.
After providing loans to help debt-wracked countries such as
Greece, Christine Lagarde, head of the International Monetary
Fund, has asked members to give her $500 billion in extra funds
for possible future eurozone bailouts.
But at a fraught meeting of finance ministers and central
bank chiefs in Mexico City in February, the leading and emerging
economies in the group of 20 (G20), said they would only boost
IMF funding if the eurozone first put its hand in its pocket.
After a month of wrangling and some German resistance, the
eurozone Friday clinched a deal it claimed was worth more than
one trillion dollars, even though 300 billion euros of that was
in loans already pledged.
In fact, they raised the maximum lending capacity of their
bailout pools to 700 billion euros, on a temporary basis, from
500 billion euros, prompting scorn from analysts who said it was
insufficient and full of artificial padding.
European officials nevertheless judged they had done enough
to unlock funds from other G20 members.
"I think now we Europeans can travel to the Spring meeting
of the (World) Bank and the (International Monetary) Fund in
Washington having done our homework on European firewalls," said
Joerg Asmussen, a top member of the European Central Bank.
"I trust today's decision will pave the way for an IMF
decision at the Spring meetings," said EU Economic and Monetary
Affairs Commissioner Olli Rehn.
And although the boost to the new "firewall" was far less
ambitious than many wanted, Lagarde seemed satisfied ahead of the
crunch April 20-22 IMF meeting where the issue of fresh lending
for the Fund will be discussed.
The deal "will strengthen the European firewall and support
the IMF's efforts to increase its available resources for the
benefit of all our members," she said in a statement.
The IMF's main lender, the United States, also hailed what
Washington termed the eurozone's "unequivocal commitment to
reinforcing their currency union."
While economists generally criticised the eurozone's
firewall deal -- with one comparing it to a "chocolate fireguard"
-- it was viewed probably sufficient to convince the likes of
China and Japan to release more IMF loans.
"By yielding to international pressure to raise its efforts,
European finance ministers will probably be able to obtain
additional commitments from the IMF and the G20 to complement the
European rescue efforts at the G20 summit in Mexico in June,"
said Christian Schulz from Berenberg Bank.
"The idea is to have a double firewall: a European response
(and I think that Europe has done its work) and an international
response coordinated by the IMF with a raising of its resources,"
French Finance Minister Francois Baroin said.
"We are in favour of that. There will still be some more
debates within the G20 on this question but we are going in the
right direction," Baroin told reporters after the meeting.
The emerging powers of the G20 are demanding more than just
money from the Europeans -- they want more power at the IMF.
At a recent summit in New Delhi, leaders from the BRICS --
Brazil, Russia, India, China and South Africa -- made an urgent
call for reform of the IMF to reflect their growing influence in
the world economy.
And Baroin warned one should not assume that more funds for
the IMF was a done deal.
Asked about Lagarde's initial response, he said: "It bodes
well, but there are still a fortnight of discussions."
Germany, seeking not only to deal with the bloc's current
debt problems but to avoid future crises, wants expert watchdogs
to oversee public spending by members of the European Union to
prevent future Greek-like near-bankrupcy scenarios, Spiegel
magazine said in its latest edition out Monday.
Finance Minister Wolfgang Schaeuble is suggesting that
independent expert commissions be set up at both national and
European level to do so, Spiegel said citing an internal ministry
The commissions would be tasked with providing early warning
of "abnormal developments" likely to spark a financial crisis.
Germany has been called upon to provide the lion's share of
EU funds to shore up debt-ridden fellow members states, such as
Twenty-five of the EU's 27 members signed a budgetary pact
in March to reinforce financial discipline in a bid to avoid any
repeat of the financial crisis.
The pact -- which Britain and the Czech Republic refused to
join -- allows for near-automatic sanctions in case of public