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IMF Resources Talks Should Follow Europe Financial Firewall, Brainard Says

Friday, 24 February 2012 | 00:00
Group of 20 nations should discuss possible further resources for the International Monetary Fund after Europe decides on its financial firewall, the U.S. Treasury Department’s top international official said.
Lael Brainard, the Treasury undersecretary for international affairs, also said today that a “large share” of the funding to solve the euro-area crisis will come from the region itself.
“The IMF should continue to play a constructive role in Europe but IMF resources cannot substitute for a strong and credible European firewall in response,” Brainard told a news briefing in Washington. “I’m sure when Europe’s response becomes clear the G-20 will be able to better assess IMF resources.”
Europe’s debt crisis will be the focus when G-20 nations’ finance chiefs, including U.S. Treasury Secretary Timothy F. Geithner, meet this weekend in Mexico City. Brainard reiterated that the Obama administration will not seek more funds for the IMF this year.
European finance ministers approved a 130 billion-euro ($172 billion) package for Greece yesterday by tapping into European Central Bank profits and convincing investors to provide more debt relief to the Mediterranean country. The deal includes a 53.5 percent writedown for investors in the nation’s debt.
European stocks retreated for a second day today after a report showed services and manufacturing output in the euro area unexpectedly contracted in February. The Stoxx Europe 600 (SXXP) Index fell 0.8 percent to 264.59 at the close. The euro rose 0.1 percent to $1.3247 at 4:42 p.m. in New York.
European Leaders
Brainard said a discussion on further IMF resources should follow European leaders’ assessment on the capabilities of a firewall at a March 1-2 summit.
“The IMF can come behind that as a second line of defense but what is going to matter most is the euro area’s own commitment as evidenced by their firewall,” Brainard said.
“We believe going forward as the IMF has played a very constructive role in Greece, we anticipate that the IMF should continue to play a constructive role in the program countries of the euro area. But the large share of the financing will continue to come from the euro area for its members,” she said.
The IMF is seeking $500 billion in additional lending power. With the U.S. not planning to contribute and euro-region nations having pledged 150 billion euros, IMF Managing Director Christine Lagarde has turned to countries including China and Saudi Arabia to fill the gap.
Convince Lenders
Greece’s government has to convince its lenders it can enforce the spending cuts that won it the second rescue in three years. Brainard said Greece has made “very strong” commitments for reforms and the U.S. will monitor its implementation.
“The path forward for Greece if it is able to deliver on its commitments to implement will be a sustainable path,” she said.
The Greece bailout plan seeks to reduce that nation’s debt burden by 107 billion euros, about half the country’s estimated gross domestic product for 2011, according to the Institute of International Finance.
In return for the new cash, Greece agreed to cut pensions, the minimum wage, health-care and defense spending, and to increase layoffs of state employees and boost asset sales. The country must implement that austerity with unemployment already topping 20 percent.
Euro members have spent at least 386 billion euros averting defaults for Greece, Ireland and Portugal.
Source: Bloomberg
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