Increase European rescue fund, IMF urges
NEW YORK: European leaders are facing fresh demands to increase the size of their rescue fund as the financial markets continue to threaten the weakest members of the eurozone.
The International Monetary Fund has urged the EU to pump more resources into its bailout programme, and also to buy up more government debt. Otherwise, the IMF warned, the crisis could escalate - threatening the stability of the euro.
"The recovery could still stay the course, but this scenario could now easily be derailed by the renewed financial market turmoil," warned the IMF in a report that will be presented to eurozone finance ministers today at a gathering in Brussels.
The EU currently has around €750bn (£635bn) at its disposal to stabilise troubled economies, including €440bn in the European Financial Stability Facility (EFSF), and €250bn pledged by the IMF. Analysts have already warned that this will not be enough to support Spain and Portugal, if needed. Belgian finance minister Didier Reynders has supported the suggestion that the EU needs more firepower, but insisted that the IMF must also dip into its reserves.
"If one doubles the (EU) fund, then the IMF must do the same," Reynders said.
Today's meeting will be dominated by the future of the single currency, with the cost of insuring the debt of Spain, Portugal, Ireland, Greece and Belgium all rising today. A split has already appeared between the finance ministers over the suggestion that they should collectively issue debt - dubbed E-bonds.
Jean-Claude Juncker, prime minister and treasury minister of Luxembourg, and Giulio Tremonti, Italy's minister of economy and finance, argue that European bonds would boost liquidity, and allow countries in difficulties to continue to borrow - removing the need for a bailout.
"We believe this proposal provides a strong, credible and timely response to the ongoing sovereign debt crisis. It would endow the EU with a robust and comprehensive framework that not only addressed the issue of crisis resolution but also contributed to the prevention of future crises by fostering fiscal discipline, supporting economic growth and deepening European integration," Juncker and Tremonti wrote in an article for the Financial Times. -PB News