Latest IMF Bailout Fund Falls €50bn Short of Target after UK Refuses to Contribute
By David Gow and Patrick Wintour
Monday 19 December 2011 15.38 EST
The eurozone debt crisis is set to spread and deepen next year, senior central bankers warned on Monday as Britain refused to contribute to the latest International Monetary Fund (IMF) bailout fund for distressed states.
A proposal to lend €200bn (£168bn) to the IMF to enable it to bail out countries in trouble floundered after George Osborne told his fellow European finance ministers that Britain would not contribute its £25bn share.
The chancellor’s refusal, which had been widely expected, came as the European Central Bank warned that contagion from the debt crisis could afflict other eurozone countries and even spread across the globe. The central bank’s financial stability review said tensions had now reached the “systemic crisis proportions” seen at the time of the Lehman Brothers collapse in 2008 – partly because of the failure of politicians to act in time.
Mario Draghi, the ECB president, told MEPs in Brussels that pressure in bond markets in the first quarter would be “really very, very significant, if not unprecedented” as hundreds of billions in debt came up for renewal.
Germany had earlier offered Britain an olive branch, with its foreign minister, Guido Westerwelle, insisting that Europe did not have a secret plan to undermine the City of London. But, even as he was speaking, EU finance ministers were holding a fractious conference call during which Osborne indicated he would only countenance extending IMF facilities in a more global G20 setting. The UK could have, at most, given £10bn rather than the £25bn bandied about in Brussels.
After the call, Brussels announced that only €150bn had been pledged for the IMF, all from eurozone members.
In Beijing the IMF’s former managing director, Dominique Strauss-Kahn, castigated the euro area’s leaders for their poor leadership and said the zone had only a few weeks to provide solutions. Yet another crisis summit has already been pencilled in for late January.Draghi told the European parliament’s economic committee that €230bn of bank bonds, up to €300bn of sovereign bonds and more than €200bn of collateralised debt obligations will all become due in the first three months of 2012.
The ECB president said he had “no doubt whatever about the strength of the euro, its permanence, its irreversibility” but he reiterated his view that the central bank had no role to play in buying up sovereign bonds on a long-term and enhanced basis.
“We are trying to avoid a credit crunch, which might come from a lack of funding for banks,” he said. “The ECB cares about financial stability, it cares a lot, but this has to be done without undermining the credibility of the institutions.”He said the proposed “fiscal compact”, to be discussed in Brussels on Tuesday by senior officials, including from the UK Treasury, was a breakthrough but was inadequate to solve the crisis.
Meanwhile, Germany raised the prospect of reopening negotiations on some form of protection for the City of London, the issue that led to the UK veto last week. Westerwelle’s comments, following talks with the foreign secretary, William Hague, suggested serious efforts were to be made to repair the damage from the bust-up with Britain at the EU summit 10 days ago.
When Westerwelle was asked if it was still possible that the UK would agree a 27-strong treaty for the euro, he answered “with goodwill, it is do-able”. He added “There is no doubt for us that we want to make the next steps in the EU together as 27, or next with Croatia as 28 countries.”
The German foreign minister said: “We think we have a common destiny. We think the EU is not only the answer to the darkest chapter of our history. It is also a life insurance in times of globalisation because no country – not Germany, not Great Britain, not France – no country is strong and big enough to face the challenges of globalisation alone.”
He added: “My main message is for the British people: you can count on us, and we count on you.
“For us, Europe is not only our destiny, it is our desire, it’s the lesson we learned. Please understand for us Europe is much more than a currency or a single market.”