Resistance in London Britain Refuses to Boost IMF Aid for Euro Crisis

EU finance ministers wanted to raise 200 billion euros to boost the International Monetary Fund's firepower in the euro crisis, but they only raised 150 billion on Monday, largely due to resistance from Britain. Germany, meanwhile, will have to rework its 2012 budget to help finance the new permanent euro rescue fund.
The Houses of Parliament in London: Britain has said it will not, for the time being, contribute its €25 billion share in boosting IMF resources to tackle the euro crisis.

The Houses of Parliament in London: Britain has said it will not, for the time being, contribute its €25 billion share in boosting IMF resources to tackle the euro crisis.

Foto: Matt Dunham/ AP

European Union leaders had decided at their Dec. 8-9 summit to boost the resources of the International Monetary Fund by €200 billion ($260 billion) to help it tackle the euro debt crisis. But in talks on Monday, EU finance ministers only managed to raise €150 billion because the United Kingdom refused, at least for the time being, to contribute its share of around €25 billion.

Following a conference call, the ministers said in a statement that the Czech Republic, Denmark, Poland and Sweden, which are in the EU but not in the euro zone, would also grant loans to the International Monetary Fund to help rescue the currency. But the EU said those countries must first win parliamentary approval.

"Euro area member states will provide €150 billion of additional resources through bilateral loans to the fund's general resources account," the EU statement said. "The EU would welcome G-20 members and other financially strong IMF members to support the efforts to safeguard global financial stability by contributing to the increase in IMF resources."

Reuters cited British Treasury sources as saying that Britain had decided not to contribute to the increase. The EU statement was more diplomatic, saying London would decide on the issue early in 2012 in the framework of the Group of 20 economies.

The increase in IMF resources is part of a strategy to strengthen the euro zone's fire-fighting capability. The euro zone is also making its existing bailout fund, the European Financial Stability Fund (EFSF), more flexible in how it tackles the debt crisis, and is bringing forward the launch of the permanent bailout fund, the European Stability Mechanism (ESM), to 2012 from 2013.

At the EU summit this month, all the member states apart from Britain  also agreed to move towards closer fiscal coordination and greater budget discipline by enshrining binding debt rules in a new treaty. 

Germany May Have to Double ESM Contribution

Meanwhile, the German newspaper Die Welt reported on Tuesday that Germany will probably have to pay €8.6 billion, twice as much as originally planned, into the European Stability Mechanism in 2012. The newspaper cited an unnamed high-ranking member of government as its source.

The first German tranche for the fund was to have been €4.3 billion, and would not have been due until 2013. But the decision to launch the ESM will force Berlin to make its contribution sooner.

The ESM is to receive a total capital base of €80 billion, with Germany contributing a total of €21.5 billion. Finance Minister Wolfgang Schäuble will now have to draw up a supplementary budget next summer. The payment to the ESM will increase the German government's net new borrowing in 2012 unless it makes corresponding savings in other areas.

Schäuble has so far planned for a budget deficit of €26.1 billion in 2012.

The EU has had to bring forward the launch of the ESM because investor confidence in the permanent rescue fund, the €440 billion EFSF, has been waning.

Ratings agencies have threatened to cut the credit ratings of many euro zone countries, including Germany and France, the biggest contributors to the EFSF. Such a downgrade would lessen the worth of the guarantees that nations have pledged to the EFSF, and would therefore affect its own creditworthiness.

cro -- with wire reports