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Bundesbank to boost IMF funds if others do -document

Thursday, 15 December 2011 | 00:00
Germany's Bundesbank is only willing to provide further resources to the International Monetary Fund as part of a solution to the euro zone debt crisis if other EU and non-EU countries do the same, a document showed.
In a letter to German Finance Minister Wolfgang Schaeuble, obtained by Reuters, Bundesbank President Jens Weidmann and board member Andreas Dombret listed conditions under which the central bank would give further loans to the IMF.
European Union leaders agreed at a summit last week to draft a new treaty for deeper integration in the euro zone and to lend up to 200 billion euros to the IMF to help it to aid euro zone strugglers.
The Bundesbank said it would be prepared to provide additional bilateral loans of up to 45 billion euros if the IMF requested it. The increase would mean a tripling of the Bundesbank's current credit line.
"It is assumed that other EU countries contribute to the financing according to their IMF quota," the letter, dated Dec. 9, read.
"Beyond this, the Bundesbank also assumes that non-EU countries make a significant contribution to the increase of the IMF resources ...," it said.
The Bundesbank declined to comment.
A source close to Weidmann said the Bundesbank would now observe carefully the reactions of other central banks, for example in Britain, France, the United States or China.
EU leaders also agreed to bring forward the permanent rescue fund European Stability Mechanism (ESM) by a year to mid-2012.
The steps, together with a leveraged EFSF - the existing bailout fund - are intended to boost help for troubled euro zone countries, such as Italy and Spain, the bloc's third and fourth largest economies, as they muddle through their refinancing crunches.
NOT WITHOUT RISK
Strengthening the Bundesbank's credit line to the IMF is not entirely without risk to the German taxpayer, however, which is why the Bundesbank wants consent from the German parliament.
On Monday, the German Free Democrats (FDP), the government's junior coalition partner, has already said the Bundesbank's decision did not require a parliament vote.
The Bundesbank said in the letter that because the IMF is treated as a preferred creditor, the risk for other creditors could rise. Also, demand for further aid measures could rise if pressure on government bonds grew further.
Source: Reuters

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