Leaders of the world’s most powerful economies have agreed to increase the resources of the International Monetary Fund (IMF) in order to help alleviate the debt crisis that threatens to spread across Europe.
Despite the consensus, leaders struggled to reach concrete plans on how to do so, as the G20 summit, which has largely been overshadowed by eurozone efforts to tackle the Greek debt crisis, concluded in the French resort of Cannes on Friday.
“It’s important that the IMF sees its resources reinforced,” European Commission President Jose Manuel Barroso told reporters. French President Nicolas Sarkozy went further, saying the IMF “must play its role as a bulwark of financial risk”.
Al Jazeera’s Jacky Rowland, reporting from Cannes, said the summit’s final communique stressed “desirable trends and tendencies rather than measureable objective”.
“The trend the countries seem to be aspiring towards is a downward movement in terms of deficits; that the deficit-to-debt ration should improve, [but] there was an absence of clear goals, an absence of percentages or numbers to measure the goals they have set,” our correspondent said.
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She continued: “There was a lot of talk about slogans such as strong, sustainable growth, but it was rather thin on actual detail about how this would be achieved.”
Eurozone leaders had hoped to boost the firepower of their bailout fund, the $606bn European Financial Stability Facility (ESFS), by seeking financing from outside investors, but cash-rich countries like China, Russia and Brazil quickly made clear that any investment from their side would have to be channelled through the IMF.
That would ensure that their loans come linked to strict economic conditions and could also give them more influence within the fund.
Barroso said several countries had indicated they would provide bilateral loans to the IMF which would give the fund more resources without collecting money from reluctant members like the United States
Finance ministers will now have to work out the details of how to boost the IMF resources, and Sarkozy said that the G20 would next deal with the topic in February.
The increase of IMF resources, mostly from large emerging countries such as China, could be in the range of $300-350bn, G20 officials said.
Sarkozy said G20 finance ministers were instructed to take forward several options for scaling up the IMF’s resources.
EU officials said one option involved pooling the eurozone countries’ rights to borrow from the IMF to build a fighting fund to support vulnerable economies such as Italy and Spain. This could make available another $280-300bn, a G20 official said.
German Chancellor Merkel said the promised increase in the resources of the IMF was positive, adding that she was optimistic that they would be used to help out the eurozone, once the currency union had worked out the details of the EFSF increase.
“We will now accelerate our work on the guidelines of the EFSF and then all IMF member states are called on to contribute to the EFSF,” Merkel said.
‘Global systemic crisis’
The plan to ramp up the IMF should help manage fears rippling through markets over Europe’s crisis.
“The crisis in Europe is causing a global systemic crisis including Asia. Rather than creating a new global framework, everyone is expecting the IMF to become more pro-active,” said Jun Azumi, the Japanese finance minister.
“The focus of debate is how to set up a firewall but we consider that the IMF should become one big wall.”
As the delegates gathered in Cannes, the eurozone was facing internal divisions with Greece’s future in the eurozone in doubt and Italy struggling with mounting debt problems.
Silvio Berlusconi, the Italian prime minister, told a press conference on Friday that Italy had turned down an offer of financial aid from the IMF, although the country has accepted that reforms to its economy should be monitored by the IMF and the EU.
Meanwhile George Papandreou, Greece’s prime minister, is facing a crucial vote of confidence on Friday night which could bring down the government, adding political turmoil to the country’s economic troubles.