The UK and other G20 countries said they will not help to bolster the International Monetary Fund until the eurozone’s member states contribute more of their own funds.
During the World Economic Forum meeting in Davos last week, a group of high-powered leaders warned that the eurozone must allocate more of its own money to a financial firewall to prevent its member states’ economic problems from contaminating the rest of the region, before it can expect other countries to help.
The UK chancellor George Osborne said: “There are not going to be further contributions to the International Monetary Fund from other G20 countries, including Britain unless we see the ‘colour of their money’.
“The eurozone needs to provide a significant increase in available resources to the firewall.”
The bloc’s leaders created a European Financial Stability Facility to address the area’s sovereign debt crisis. The special purpose vehicle is financed by eurzone members and can issue bonds or other debt instruments to raise the funds needed to provide loans to struggling member states.
The €440bn lending capacity of the Facility may be combined with loans up to €60bn from the European Financial Stabilisation Mechanism and up to €250bn from the IMF to obtain a financial safety net up to €750bn.
The US, Japan, China and other countries are being called on to contribute more to the IMF to buttress the firewall. Leaders of the 17-member eurozone have pledged to increase the EFSF cushion, which at the moment has an estimated €250bn in unused funds. However, they have not agreed on the final amount.
Japan’s minister for national strategy, economic and fiscal policy said at the Swiss meeting: “Europe must exert the utmost effort, otherwise I don’t think that developing countries like China will be so willing to contribute more money to the IMF.”
He said Japan had already bought 16 per cent of the EFSF bonds issued so far.
The IMF head, Christine Lagarde retorted that the eurozone crisis is not isolated and could have negative ripple effects globally.
“It’s not just a eurozone crisis, it’s a crisis that could have collateral effects, spillover effects, around the world,” she said.
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