IMF Calls for Increased Funding
January 26th, 2012
The Managing Director of the International Monetary Fund (IMF), Christine Lagarde, has called to “increase” but not “double” the European bailout fund, so that countries like Spain and Italy are not drawn into a liquidity crisis.
At a conference in Berlin before the German Society for Foreign Policy, Lagarde said that “stronger firewalls” are essential in the European Union (EU) to prevent the contagion of more economies with debt problems.
“We believe that stronger firewalls are needed. Without them, countries like Italy and Spain, which are essentially able to pay their debt, may be faced with a problem of lack of liquidity due to an abnormal situation in the markets,” Lagarde said.
As reported in El Mundo, the IMF chief said that it is enough to increase the financial capacity of the funds in a “credible” and “operational” manner, and that it is not necessary to double them. In addition, Lagarde demonstrated she was in favour of transferring unused resources from the temporary European Financial Stability Fund (EFSF) to the permanent European Stabilisation Mechanism (MEDE) when it becomes operational in mid 2012.
This will break the “vicious circle” of banks damaging state finances and they, in turn, then put a strain on financial institutions’ accounts.
In Lagarde’s opinion, the EU must simultaneously strengthen firewalls, promote economic growth and deepen fiscal integration in order to solve the sovereign debt crisis.
On promoting growth, Lagarde pointed out that, by taking advantage of the downward trend in inflation, they can act more “decisively” with regard to monetary policy.
In this sense, she said it is important that the credit flow flows, and it is for this reason she urged “those countries, not all” who enjoy some “room for manoeuvre” in the tax field to “reconsider” this “general principle” to reduce debt.
Regarding the third pillar for economic recovery, the deepening of financial integration, Lagarde suggested that the mere announcement of the EU that it is determined to implement the so-called Eurobonds in the future, would send a “serious message” to the markets .
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