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February 28, 2012

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G20 says bigger euro firewall needed before more IMF funds

G20 says bigger euro firewall needed before more IMF funds
MEXICO CITY: The Eurozone must put in place a bigger firewall to combat its debt crisis before other countries will help by giving more cash to the IMF, the G20 top and developing economies said Sunday.
A statement released after a meeting of the group of 20 finance ministers and central bankers here said: “Euro area countries will reassess the strength of their support facilities in March.
“This will provide an essential input in our ongoing consideration to mobilize resources to the IMF.”
Calls on the Eurozone to boost their crisis-fighting war chest dominated the meeting here in Mexico City, with top officials such as US Treasury Secretary Timothy Geithner saying it was essential to prevent more fallout worldwide.
“This is going to be a very difficult process of many, many years in Europe,” he warned after the meeting.
At a crunch two-day summit in Brussels starting on Thursday, EU leaders will debate whether to combine their current firewall, the EFSF, with a permanent pot due to come into effect in July.
This would give the debt-wracked 17-nation zone a total fund of some 750 billion euros ($1 trillion).
Europe’s top economic official, Olli Rehn, said he was confident leaders would decide on a reinforced firewall “during the course of March,” downplaying the chances of success of the summit.
To add even more firepower, the Eurozone has called on countries outside the bloc to bolster the IMF’s resources.
IMF chief Christine Lagarde has said the fund needs an additional $500 billion, although she said she was “not obsessed” by this figure.
“We have to be flexible,” she told reporters.
“Progress on this strategy will be reviewed at the next ministerial meeting in April,” the G20 statement said.
The central bank governor of Mexico, which hosted the meeting as the current leader of the G20, said work would continue behind the scenes to come to an exact amount.
“The issue of amounts was not discussed today, but it will be an essential theme and will be worked on from now until the spring meetings of April,” Agustin Carstens told reporters.
Eurozone countries themselves have already promised 150 billion euros to the IMF in the hope of reassuring the markets they have the resources to tackle a re-emergence of the crisis.
But countries outside the zone, including the United States, Britain, Japan and China insisted at the G20 meeting here that the Eurozone first puts its hand in its pocket.
Britain’s Finance Minister George Osborne told Sky News: “We are prepared to consider IMF resources but only once we see the color of the Eurozone money and we have not seen the color of the Eurozone money.”
However, the major sticking point to an increase in the Eurozone firewall remained Germany — the bloc’s top economy and political powerhouse.
Finance Minister Wolfgang Schaeuble made no bones of Berlin’s opposition to pouring in more cash to the pot, saying it “didn’t make any economic sense.”
Nevertheless, he also noted that a decision in March would be “timely” given the IMF discussion on more resources a month later.
A senior G20 official said that Europe was carefully managing the sequence of steps needed to put in place all the building blocks for a total deal — bigger Eurozone fund plus more IMF funds — that would finally douse the crisis.
“It’s not about answering the question: ‘which comes first, the chicken or the egg?’ ... it’s about moving forward together on both issues” of the Eurozone firewall and IMF funds, said French Finance Minister Francois Baroin.
And while piling on the pressure on Europe to sort out its problems, the G20 statement also heaped praised on the measures already carried out, notably in crafting a second bailout package for recession-mired Greece.
“We welcome the important progress made by Europe in recent months to strengthen their fiscal positions, adopt measures to reduce financial stress... and to put Greece on a sustainable path,” the statement said.
Nevertheless, while the crisis has abated in recent weeks, the G20 warned that “growth expectations for 2012 are moderate and downside risks continue to be high” while adding they were “alert” to the risks of higher oil prices.
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