G-20 Fails to Agree on IMF Resources

World leaders could not come to an agreement on the bailout of Greece and demanded that the country's government do more to fix the debt crisis. This shows that there is global irritation with Europe's failure to solve the problem on their own.

By Simon Kennedy and Sandrine Rastello
Nov 4, 2011 9:35 AM MT

World leaders balked at writing new checks to help bail out the euro-area, demanding its own governments first do more to fix the two-year-old debt crisis.

Global policy makers are awaiting more details of a week- old rescue package before they commit fresh cash to the International Monetary Fund which could then lend to Europe’s bailout facility, German Chancellor Angela Merkel said at the end of a Group of 20 summit in Cannes, France. French President Nicolas Sarkozy said a deal may not come before February.

“The worst thing to do would be to try and cook up a number without being clear who was agreeing to what,” British Prime Minister David Cameron told reporters. “The job of the IMF is to help countries in distress, not to support currency systems.”

The refusal of major economies to stump up money now reflected irritation with Europe’s failure to resolve its crisis alone and foiled investor hopes that the summit would mark a turning point. The turmoil is instead flaring again as Greece’s government lurches toward collapse and Italian Prime Minister Silvio Berlusconi said he refused an offer of IMF aid.

“There really are hardly any countries here that said they will join up” with the European Financial Stability Facility, Merkel told reporters, as she committed Europe to speeding up implementation of an Oct. 27 accord to boost the power of its EFSF rescue fund, recapitalize banks and write-down Greece’s debt.

Euro, Stocks Fall

European and U.S. stocks fell as did the euro. The Stoxx Europe 600 Index declined 1 percent to 239.78 at 4:20 p.m. in London, after rising as much as 0.6 percent earlier today. The euro erased gains and fell 0.5 percent to $1.3758.

In a statement which blamed Europe for fanning financial market tensions, the G-20 said it would ensure the IMF “continues to have resources to play its systemic role” and left it to its finance chiefs to debate how to provide more funds if needed.

Leaders also named Deutsche Bank AG and BNP Paribas SA as among 29 lenders facing new capital surcharges and agreed to limit the risks posed by so-called “too big to fail” banks. They called on regulators to examine the effect of credit- default swaps on bond prices and said they would better manage capital flows.

Chinese Yuan

Beefing up their language on exchange rates, they vowed to “move more rapidly toward market-determined” currencies, and in an appendix welcomed China’s “determination” to increase the yuan’s flexibility. The group made progress on a future financial-transaction tax, Sarkozy said.

Europe’s bosses had planned to showcase their new crisis- fighting plan on the French Riviera and secure outside support for a doubling of the EFSF’s 440 billion euro ($603.8 billion) spending strength to protect bigger economies such as Italy from contagion. That strategy blew up on the eve of the meeting as Greek Prime Minister George Papandreou called a referendum he later retracted and as Italy came under the spotlight of investors.

“Markets are constantly searching for good news and opportunities,” Canadian Prime Minister Stephen Harper said. “The sooner European leaders and others can simply confirm they’re moving forward, I think that would be the quickest way to get us out of this crisis of confidence.”

U.S. President Barack Obama said he’d had a “crash course” in European politics in Cannes and that it’s important for its governments to send a “clear signal that the European project is alive and well.”

Holding Off

The chaos in Europe led countries from China to Russia and Brazil to say they would hold off pledging money to Europe’s cause even as they signaled a potential willingness to eventually do so through the IMF. The Washington-based lender can attach strings to its aid.

The BRICS group of emerging economies, comprising Brazil, Russia, India, China and South Africa, will decide on a “financial contribution” to the euro region in “coming weeks,” the economic adviser to Russian President Dmitry Medvedev said. Brazilian President Dilma Rousseff said she “has no plans or intentions to make any direct contribution” to Europe and that China told her it would also rather use the IMF.

IMF Options

Options for bolstering the IMF’s $391 billion war chest when the time comes include opening a trust fund or not rolling back a 2009 cash increase. They also discussed increasing the amount of the fund’s Special Drawing Rights. The G-20 agreed to have the IMF create a new, six-month line of credit for countries “with strong policies and fundamentals.”

Athens remained a focal point today as Papandreou struggled to cling on to power and politicians tried to map out a plan to put in place a new government to ratify last week’s rescue package. With European leaders freezing 8 billion euros in assistance that his country needs to dodge default, Papandreou faces a midnight confidence vote and opposition leader Antonis Samaras is refusing to share power with the premier.

Papandreou’s Oct. 31 decision to hold a ballot on the bailout backfired by splitting his party, roiling markets and drawing taboo-breaking warnings from EU powers that it could cost Greece its euro membership.

Prodded by counterparts, Berlusconi accepted IMF monitoring of efforts to cut the euro area’s second-largest debt burden after Greece. While he has promised steps such as a higher retirement age and state-asset sales, investors say they don’t go far enough and his ability to push legislation through Parliament is hampered by yesterday’s defection of two lawmakers from the ruling party.

“Berlusconi is conscious of the doubts that surround his plan,” Sarkozy said. The Italian premier said the surveillance had been “requested, not imposed” and that he turned down an offer of IMF money.

“We have thanked them and said we didn’t need those funds,” he said.

To contact the reporters on this story: Simon Kennedy in Cannes, France, at skennedy4@bloomberg.net; Sandrine Rastello in Cannes, France srastello@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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