World economic powers told Europe on Friday it would have to do more to fight its financial crisis before they agree to provide back-up in the form of a bigger IMF war-chest.
Finance ministers and central bankers from the G20 top economies are gathering in Mexico City with Europe hoping that China, Japan and others will soon commit to giving the IMF more money so it can help eurozone countries that suffer a cash crunch.
However, many G20 countries are insisting that Europe needs to take the first step by bolstering its own bailout funds.
“I expect no decision at the G20 summit on boosting the IMF’s resources,” said Jens Weidmann, head of Germany’s central bank and a European Central Bank (ECB) Governing Council member.
The host of the weekend’s meetings, Mexican Finance Minister Jose Antonio Meade, said it was “still early in the process” to discuss specific amounts and ways that G20 nations could commit more money.
The world’s rich countries have used the G20 to coordinate their response to the financial crisis that erupted in 2008 after the collapse of the US housing bubble and then spread to Europe, where many countries are saddled with heavy debts.
As the crisis has dragged on, divisions over how to tackle it have deepened. The IMF wants to raise as much as US$600 billion in extra resources to help deal with fallout from the eurozone debt crisis, but the plan faces resistance from countries including the US and Canada.
The US has told Europe to do more on its own and also made clear it would not provide more cash to help the IMF handle the crisis.
“What we don’t want to see is the IMF substitute — and it really cannot substitute — for a stronger European response,” US Treasury Secretary Timothy Geithner told CNBC TV.
Even if it wanted to, US President Barack Obama’s administration would have little or no chance of getting Congress’ approval in an election year to send more cash to help out Europe.
US reluctance has put the onus on Europe’s richest countries, plus China, Japan and others, to raise the funds.
EU leaders will meet next week to discuss boosting their own bailout funds. Even G20 countries that are willing to help are unlikely to promise more money until Europe proves it is acting to help itself.
“The problems many countries are facing today have a solution if they act decisively and in time,” Bank of Mexico Governor Agustin Carstens said. “If this is done sooner rather than later, we will see a promising future for the global economy.”
Despite the stand-off over timing, there was broad agreement within the G20 about the need to eventually increase the IMF’s firepower and that would likely be reflected in a communique at the end of the weekend’s meetings, diplomats said.
Germany has come under pressure, with critics saying it could do more to help its struggling European partners and that its insistence on fiscal belt-tightening risks plunging Greece even deeper into crisis.
Weidmann hit back on Friday, saying Germany was already financing a “disproportionately large share” of rescue efforts to date and that its insistence on budgetary discipline was aimed at ensuring a stable monetary union.
He said there was a popular misconception that Germany had managed to “dodge the flames of the current crisis ... [and] ... is now selfishly refusing to come to the aid of the stricken countries by acting as chief firefighter.”
Brown Brothers Harriman currency strategist Mark McCormick said the long-term answer to Europe’s problems would require further progress on a common approach to running national budgets.
“Money from the G20 via the IMF buys them a bit more time,” he said.
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