|European Investment Bank President Philippe Maystadt presents to the Committee on Budgetary Control [Reuters]|
European Union finance ministers have come up $65bn short of their goal of providing the International Monetary Fund with $260bn to help heavily indebted nations avoid default.
The eurozone will provide an extra $150bn to the IMF through bilateral loans, Jean-Claude Juncker, the prime minister of Luxembourg, who also chairs the meetings of the currency union’s finance ministers, said in a statement on Monday.
Greece, Ireland and Portugal, which have received massive bailouts, will not have to contribute to the IMF loans.
Of the non-euro countries, only Denmark, Poland, the Czech Republic and Sweden will also send extra money to the Washington-based fund, Juncker said, without giving specific amounts.
Poland had previously said it would provide around $8bn, while Denmark has promised $7bn – underlining that the $260bn target will be missed.
The IMF welcomed the money late Monday. “We welcome the EU Finance Ministers’ support for a substantial increase in the IMF’s resources, as we work to strengthen our capacity to fulfill our systemic responsibilities to our global membership,” a spokesperson said in a statement.
The failure to come up with the full amount that had been indicated at a summit of EU leaders just 10 days ago signals further rifts within the 27-country EU.
At the summit, the 17 eurozone countries also agreed to set up a new treaty to create tighter fiscal rules for the currency union, which has been rocked by a debt crisis for the past two years.
The new accord was made necessary after the United Kingdom blocked changes to the existing EU Treaty.
Britain, the largest economy among the 10 non-euro countries in the EU, also declined to contribute to the IMF loan target, of which its share would have amounted to some $40bn.
Instead, London signalled that it may provide more resources to the IMF through the Group of 20 framework, which most likely wouldn’t be earmarked for the eurozone.
“The UK has always been willing to consider further resources for the IMF, but for its global role and as part of a global agreement,” the office of UK treasury chief George Osborne said in a statement.
The extra IMF loans are meant to be channelled into a special fund that will invest alongside the eurozone’s own bailout fund – the European Financial Stability Facility.
The eurozone hopes that its own loans, which will come via national central banks, will encourage other non-European countries to also support Europe via the IMF.
The eurozone is desperate for outside investors, because the $572bn EFSF is seen as way too small to save large economies like Italy and Spain.
The EFSF has already committed some $52bn to Ireland and Portugal and may have to take on more than $130bn for a second bailout for Greece.
At the same time, the fund’s ability to raise rescue money cheaply on financial markets is threatened by potential downgrades for several eurozone states that guarantee its lending.
Rating agency Standard & Poor’s earlier this month put 15 eurozone countries, as well as the EFSF, on watch for a downgrade, citing the escalating debt crisis.
France, the second-largest contributor to the EFSF and currently one of six eurozone states with a AAA rating, is considered to be at particularly high risk of seeing its creditworthiness cut.
But the president of the European Central Bank warned Monday that “it’s likely that if France loses its rating, then other countries’ ratings would be changed” as well.