Prospects for a rapid increase in International Monetary Fund firepower to cope with the eurozone crisis have receded after the Japanese government and the Bundesbank set tough conditions before making contributions.
On Tuesday Jun Azumi, Japanese finance minister, said that the EU needed to present a more convincing plan before Japan put more money into the IMF.
“The EU must make further efforts to convince markets,” he said. “Without European countries showing exactly how much would be needed to deal with the crisis, we would not be able to move on to the next step involving the IMF”.
Mr Azumi’s comments follow an announcement at last week’s EU summit that European countries would contribute €200bn to the IMF through their central banks, significantly increasing the fund’s current available lending firepower of around €290bn. European officials said they expected non-European countries including the big emerging market nations to contribute an equal amount.
Separately, hopes that eurozone leaders might increase the size of their own rescue fund in March were knocked when Angela Merkel, Germany chancellor, reportedly told lawmakers in a closed session she was sticking to her demand for a €500bn ceiling.
The IMF has contributed about a third of the rescue packages for Greece, Ireland and Portugal, but a substantial bail-out for the much larger economies of Italy and Spain would be beyond its current resources.
The Bundesbank, which is supposed to provide €45bn of the €200bn, says that its loan is conditional on other large countries within the EU and outside also making significant contributions.
In a surprising move by the usually fiercely independent Bundesbank, it has also sought backing for any loans it makes from Germany’s parliament, arguing that ultimately taxpayers’ funds would be put at risk. But German political leaders have refused a formal vote. On Tuesday, there were indications the Bundesbank would have to accept a deal by which the German parliament simply “took note” of the extra lending.
The UK and US have already said they will not contribute. David Cameron, UK prime minister, faces a strongly Eurosceptic faction within his party, and the US has encountered stiff congressional opposition to funding the IMF’s participation in eurozone bail-outs.
Although contributions to the IMF generally have a budgetary cost of nil to the country concerned, as it simply involves shifting part of their foreign exchange reserves from one deposit to another, many IMF member countries require legislative approval before increasing funding.
The European Central Bank, which in effect has a veto over eurozone member states’ central banks lending to the IMF, has signalled that such contributions will have to go to the fund’s “general resources account”, where in theory they could be used for rescue programmes for any of the IMF’s 187 member countries, rather than being earmarked for the eurozone.
The US and Canada have sounded cool about the idea of the IMF leading a bail-out for the likes of Spain and Italy. US officials say that the eurozone must take the bulk of the credit risk of lending to governments within the single currency area.
Jim Flaherty, the Canadian finance minister, said last week: “The IMF is there to help out poorer countries in the world, and the European countries are relatively well off.” Mr Flaherty added: “We want to see more use of their own resources before we get engaged there.”
On Tuesday Mr Azumi said he understood the US and Canadian stance, and that the eurozone would be “taking steps in the wrong order” if it turned first to the IMF for money.
Ministers from big emerging market countries have said they are prepared to contribute more to the IMF, but also that the eurozone needs a coherent plan. The last substantial increase to IMF resources came in 2009, when a series of governments made bilateral loans to the fund to enable it to cope with the global financial crisis.