IMF chief calls for combo EU rescue fund

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IMF chief calls for combo EU rescue fund

IMF chief calls for combo EU rescue fund

Wednesday, January 25, 2012
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Lagarde says a common fund would send a strong signal of confidence.

PARIS: International Monetary Fund chief Christine Lagarde said Wednesday that combining the European Union's two financial rescue funds would represent a very strong signal of confidence in Europe.

 

"If the two together could make a common fund, it would be a very strong signal of confidence in Europe," Lagarde told Europe 1 radio.

 

The European Union has approved two funds, one meant to be temporary and one permanent, to provide a backstop for heavily-indebted countries that have had to offer higher rates of interest to borrow on private equity markets.

 

The European Financial Stability Facility still holds 250 billion euros ($325 billion) from an initial kitty of 440 billion euros and is to be wound up in July 2013.

 

The EFSF is to be replaced by the European Stability Mechanism (ESM), which should begin operating next July and run in parallel with the first fund for a year.

 

The combined capacity of both funds is supposed to be capped at 500 billion euros, but several countries, the European Central Bank and the European Commission want it to be larger.

 

Lumping the two together as Lagarde suggested would raise the total sum to 750 billion euros, an amount that could prove useful if market speculators got a major eurozone economy like that of Italy or Spain in their sights.

 

Germany, the biggest contributor to both funds, is pressing meanwhile for eurozone states to agree to stricter budget rules than are currently planned in exchange for agreeing to boost the ESM.

 

German Chancellor Angela Merkel rejected on Monday the idea of immediately ploughing extra cash into the ESM. "The first priority is to implement the ESM and to wrap up the negotiations on it," she told reporters.

 

Lagarde acknowledged on Wednesday that "there must be common rules," before adding that "there must be a kind of collective will demonstrated by a line of defence."

 

The IMF chief has called repeatedly for a stronger firewall to protect countries like Italy and Spain, which can repay their debts but which could still be pushed towards insolvency if investors lost faith in their ability to survive the chronic eurozone crisis.