/ 20 March 2009

EU leaders call for doubling of IMF firepower

European Union leaders will urge the G20 leading and emerging economies to double the size of the International Monetary Fund’s (IMF) arsenal for fighting global recession to $500-billion, a draft declaration showed on Friday.

The draft also held out the prospect of the EU offering aid to eastern European states hit hard by the global downturn, but rejected United States pressure for the 27-nation bloc to inject more money into their own economies to combat the crisis.

The draft, for issue at a Brussels summit where leaders were seeking a united response to growing economic problems, said the priority remained to see through existing recovery plans and exercise budgetary restraint.

”Now it is time to implement all those packages and promises, so I don’t think it’s time to create some more packages,” Estonian Prime Minister Andrus Ansip told reporters.

EU officials responded coolly to comments by a senior German member of Parliament that eurozone countries had outlined a plan to prevent member states which use the currency going bankrupt, with Ireland and Greece top candidates for aid.

The European Central Bank said the information in the deputy’s remarks on its role were untrue.

”This is a theoretical question,” Luxembourg Prime Minister Jean-Claude Juncker, chairperson of the 16-member eurozone group, said of the state bankruptcy risk. ”It won’t happen.”

Otto Bernhardt of Germany’s ruling conservative party told Reuters the European Central Bank (ECB) had a fund that could inject emergency funds to a country within 24 hours.

The ECB declined to comment on the report, after which the euro eased.

Maintaining leverage
The EU faces growing unemployment, falling production and increasing signs of public discontent over the economic crisis.

Unions said three million people took part in protests in France on Thursday and governments have fallen in two member states, Latvia and Belgium, since the global economic crisis began.

But EU leaders are resisting US-led calls to increase the amount of money they are injecting into their economies to combat the crisis, even though the US Federal Reserve pledged an extra $1-trillion on Wednesday to help the US economy.

The EU wants instead to boost the IMF ability to bail out countries that are struggling. The summit draft said the EU would propose at the G20 summit in London on April 2 that leaders agree to double IMF resources.

The draft gave no figure for the EU contribution. Some EU officials said this was a deliberate move to maintain leverage on other countries such as China and Saudi Arabia before the London meeting.

Belgian Finance Minister Didier Reynders told Reuters there had been a verbal agreement to pledge $75-billion, and Britain said it supported a range of $75-billion to $100-billion.

The EU draft also said the bloc was ready to help European countries in trouble on a case-by-case basis and to keep under review the ceiling of a $33,7-billion EU crisis fund which has already been used by Latvia and Hungary.

Reflecting European calls for tighter regulation to avoid a repeat of the financial crisis, the draft called for ”appropriate regulation and oversight of all financial markets, products and participants that may present a systemic risk”.

EU leaders also want to end a dispute over the branding of European countries as tax havens. Diplomatic sources said there was agreement that no EU state should appear on a blacklist of such countries.

”These countries which have accepted these standards, the are not on this blacklist,” Czech Prime Minister Mirek Topolanek, whose country now holds the EU presidency, said of Switzerland and EU members Luxembourg and Austria.

In a move to ease concern over the hard-hit economies of central and eastern Europe, European Commission President Jose Manuel Barroso proposed doubling to €50-billion an EU fund available to troubled non-eurozone members.

EU leaders also agreed on a list of schemes to benefit from a further €5-billion of EU funds. Among them, the Nabucco pipeline intended to bypass Russia to bring Caspian gas to Europe won 200 million euros of funding. — Reuters