Eurozone warned to strengthen its firewall
At the World Economic Forum in Davos, Switzerland, the Chancellor argued that more had to be done to increase the Eurozone’s bail-out fund, which has been established to prevent the economic area’s financial crisis spreading to the rest of the global economy.
“I think the Eurozone leaders understand that,” said Osborne, the only European minister in yesterday’s talks on the 2012 global economic outlook.
But, calling for the Eurozone to provide a significant increase in available resources, he added: “There are not going to be further contributions from G20 countries, Britain included, unless we see the colour of their money.”
Osborne’s remarks supported those made by the IMF Managing Director Christine Lagarde, who led the push to boost the firewall.
“If it (the firewall) is big enough it will not get used,” she argued.
Lagarde hopes to ramp up the IMF’s resources by $500 billion (£318bn) so it can help if more lending is needed in Europe or elsewhere. The IMF is the world’s traditional lender-of-last-resort and has been involved in the bailouts of Greece, Ireland and Portugal.
Lagarde said the IMF could boost its support for the Eurozone but pressed the leaders of the embattled currency bloc to act first. Osborne said he would be willing to argue in Parliament for a new British contribution, though he warned he may encounter opposition from some members from his own Conservative Party.
Countries beyond the 17-country bloc want to see its members stump up more money before they commit additional resources to the IMF, which this month requested an additional ¤500bn in funding.
“Now is the time – there has been a lot of pressure building in order to see a solution come about,” Lagarde told the panel from which Eurozone leaders – most notably Germany – were conspicuously absent.
“It is critical that the Eurozone members develop a clear, simple firewall that can operate both to limit the contagion and to provide this sort of act of trust in the Eurozone, so that the financing needs of that zone can actually be met,” she said.
Lagarde’s comments headed a crescendo of calls at the Davos Forum for the Eurozone to boost its financial defences. The annual five-day conference began with German Chancellor Angela Merkel deflecting pressure to do so.
In a keynote address, Merkel suggested doubling or even tripling the size of the fund may convince financial markets for a time, but warned that if Germany made a promise that could not be kept, “then Europe is really vulnerable.”