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EU leaders plead for IMF help

11-30-2011 13:48 BJT

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Eurozone finance ministers have agreed to ramp up the fire-power of the European Financial Stability Facility, and raised the possibility of asking the IMF for help. They also finally approved the eight billion euro aid tranche to Greece, to help the country stave off the immediate threat of default before Christmas. But, Italy is getting more vulnerable, with its borrowing cost hitting a euro-era high of nearly eight percent.

With the Europe Central Bank and Germany each standing their ground in opposing the ECB being a lender of last resort, eurozone countries need another way out. They’ve now turned to the IMF, and the region’s finance ministers have agreed to explore ways of boosting the international lender’s resources, through bilateral loans. All this, so the IMF can match the leveraged capabilities of the eurozone’s bailout fund.

(L to R) European Monetary Affairs Commissioner Olli Rehn, Spain's Economy
Minister Elena Salgado, Italy's Prime Minister and Finance Minister Mario
Monti and Luxembourg's Prime Minister and Eurogroup chairman, Jean-Claude
Juncker attend a Eurogroup meeting at the European Union council headquarters
in Brussels, November 29, 2011.

The ministers also agreed to two ways to leverage the firepower of the European Financial Stability Facility, or EFSF. The plan proposes to use both an insurance scheme, and a co-investment program. The EFSF has around 250 billion euro of its capacity remaining, and could multiply that several times over, if it can attract outside private investors to buy bonds at primary auctions, or traded on the secondary market. The IMF’s current lending capacity is around 250 billion euro.

With the release of the second bailout to Greece, more resources are in need to stave off the possibility of default in indebted countries. But with investors fleeing the eurozone bond market, China and other major sovereign funds being cautious about investing more in the region’s debt, European leaders expect a major shortfall of funds in the short-term.

Dutch Finance Minister Jan Kees Djae Jager said: "All the countries that are under pressure from the markets have high deficits, high debt or economic problems, and that needs to be tackled in a fundamental way and by the countries themselves. We have to avoid ever entering into such a crisis again and we will do that by imposing very strict measures on governance, on budget oversight, for example by having a treaty change that sees to it that a country can never derail again so strongly from their economic and budgetary targets."

The 17 member currency bloc agreed on a detailed plan, to insure the first 20 to 30 percent of new bond issues for the countries having funding difficulties, and create co-investment funds to attract more foreign investors to buy eurozone government bonds. Sources say one possible option is for the ECB to lend money to the IMF, which would then be directed to Italy and Spain. However, a Reuters poll of economists show a 40 percent chance the ECB would step up bond-buying with freshly-created money, which the ECB has so far opposed.

From left, European Commissioner for the Economy Olli Rehn, Spain's Finance Minister
Elena Salgado, Italian Prime Minister and Finance Minister Mario Monti and
Luxembourg's Prime Minister Jean-Claude Juncker pose for a photo during a round table
meeting of the eurogroup at the EU Council building in Brussels on Tuesday, Nov. 29,
2011.

From left, Belgium's Finance Minister Didier Reynders, Spain's Finance Minister Elena
Salgado, Italian Prime Minister and Finance Minister Mario Monti, Dutch Finance
Minister Jan Kees De Jager, Malta's Finance Minister Tonio Fenech, and German Finance
Minister Wolfgang Schaeuble share a word during a round table meeting of the
eurogroup at the EU Council building in Brussels on Tuesday, Nov. 29, 2011.

Greek Finance Minister Evangelos Venizelos, left, shakes hands with Italian Prime
Minister and Finance Minister Mario Monti during a round table meeting of the
eurogroup at the EU Council building in Brussels on Tuesday, Nov. 29, 2011.

 

Editor:Zhang Rui |Source: CNTV.CN

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