EURO FINANCE ministers resolved last night to provide bilateral loans to the International Monetary Fund to give it the power to ramp up its response to Europe’s debt crisis.
The development comes as the European Central Bank comes under pressure to assist in the effort to boost the resources of the IMF.
The initiative reflects anxiety that the campaign to expand the cial Stability Facility firepower of the European Finanbailout fund has fallen well short of the required amount.
The increasing clamour for a bigger IMF intervention in the euro zone comes as EU officials grapple with a shortfall of up to €500 billion in the effort to expand the EFSF’s lending capacity via a “leveraging” of its assets. This, however, has led to a requirement for additional lending capacity on the part of the IMF itself.
“We ... agreed to rapidly explore an increase of the IMF through bilateral loans following the mandate from the G20 Cannes so that the IMF could adequately match the firepower of the EFSF and co-operate even more closely with it,” said Jean-Claude Juncker, chief of the euro zone ministers.
EU economics commissioner Olli Rehn said there was “broad support” for the plan among euro zone countries.
There was little clarity, however, as to the size of the additional contributions that might be required from individual euro zone countries.
“This work is in progress. We are together with the IMF consulting potential contributors through bilateral loans,” Mr Rehn told reporters late last night in Brussels.
The ministers’ talks took place in the shadow of record Italian borrowing costs and increasing anxiety that the country will not be able to refinance its huge national debt without external aid. Similar concerns surround Spain, which is struggling to convince investors that it can survive on its own.
The provision of bilateral loans from euro zone countries would avert the requirement for increased contributions to the EFSF, something EU leaders are very keen to avoid.
In addition to bilateral loans, the ministers are also exploring whether the ECB can provide loans to the IMF to enable it to step up its support for distressed euro zone countries.
“We will discuss with the ECB,” said Belgian finance minister Didier Reynders told reporters as he arrived for the meeting.
“The ECB is an independent institution, so we will put on the table some proposals and after that it is for the ECB to take the decision.”
It remained unclear, however, whether the ECB would be willing to contemplate such action.
With the support of Germany, the bank has been resisting pleas to intervene as a lender of last resort to euro zone countries and argues that EU law prohibits it from doing so.
As he arrived in Brussels, Minister for Finance Michael Noonan said the role of the ECB was “certainly” under discussion.
“From our perspective we see how the Bank of England operates and we see how the Fed operates, but I understand it’s not legally possible for Frankfurt to operate in the same way,” he said.
“So we’ll have to see if somebody has come up with a clever formula to allow what many people are now requesting and to provide a safe legal route for doing so.”
The push for increased ECB interventions reflects concern that the effort to boost the EFSF will leave it with “insufficient” resources.
In the vanguard here are the finance ministers of Germany, Finland and the Netherlands, who met last week to discuss how the looming shortfall in the EFSF’s resources could be overcome.
EU leaders want to increase the firepower of the EFSF to €1 trillion but in Brussels ministers expected to hear only €500 billion or €625 billion would be available.
“We have talked about leverage though private money, but it would be two or two-and-a-half times an increase so not sufficient and we have to look for other solutions to compliment the EFSF and that in my mind will be the IMF,” said Dutch minister Jan Kees de Jager.