By Mark Deen and Shamim Adam - Sep 22, 2011 1:50 PM PT
Enlarge image
Francois Baroin, France's finance minister, right, speaks with Christine Lagarde, managing director of the International Monetary Fund (IMF), during a meeting of the G7 finance ministers and members of the Deauville Partnership in Marseille, France, on Sept. 10, 2011. Photographer: Chris Ratcliffe/Bloomberg
Sept. 22 (Bloomberg) -- Richard Clarida, global strategic adviser at Pacific Investment Management Co., talks about the outlook for global monetary policy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Sept. 22 (Bloomberg) -- International Monetary Fund Managing Director Christine Lagarde talks about "downside risks" for the global economy, the IMF's mission and goals for its annual meetings in Washington this week, and the European sovereign-debt crisis. Lagarde, speaking with Tom Keene on Bloomberg Television's "InBusiness With Margaret Brennan," also discusses IMF funding and her experience in preparing for her new job. (Source: Bloomberg)
European finance chiefs said they may use leverage to increase the financial firepower of their regional bailout fund as a selloff in stocks signaled renewed concern that policy makers are failing to ward off a global economic slump.
The call to consider raising their fund’s ammunition -- made by French Finance Minister Francois Baroin and European Union Commissioner Olli Rehn -- suggests Europe’s policy makers are alert to concern among investors and foreign governments that they now lack the muscle to quell their debt turmoil if it spreads toward Italy and Spain.
How to tackle Europe’s woes will top the agenda when finance ministers and central bankers from the Group of 20 nations gather for dinner in Washington tonight ahead of the annual meetings of the International Monetary Fund and World Bank. They convene after global stocks entered a bear market and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian warned the world is on the brink of another financial crisis.
“There has been a significant increase in the financial requirements of international intervention,” El-Erian said in Washington. “You need a lot more firepower in order to be a circuit breaker.”
July Plan
European parliaments are now focused on approving a July plan to expand the scope of the 440-billion euro ($593 billion) European Financial Stability Facility to allow it to buy the debt of stressed euro-area governments, aid troubled banks and offer credit lines. Its current role is to sell bonds to fund rescue loans for cash-strapped governments.
The ratification process has drawn fire from some investors for being protracted and failing to provide the fund with enough cash to prevent the crisis leaking beyond Greece. Curbing the scope of policy makers to do more is the suspicion taxpayers in AAA-rated countries such as Germany and Finland would balk at stumping up even more rescue cash.
That has fanned speculation Europe may eventually ratchet up the fund’s spending power, perhaps by using the bonds it sells as collateral to borrow more cash from the European Central Bank. Another proposal is to mimic a U.S. program established following the 2008 collapse of Lehman Brothers Holdings Inc. by allowing the fund to offer the ECB credit protection for buying more sovereign bonds.
EFSF Resources
“It is very important that we look at the possibility of leveraging the EFSF resources and funding to have a stronger impact and make it more effective,” EU Monetary Affairs Commissioner Rehn said in Washington. Baroin said separately that policy makers “need the right firewall to prevent contagion” and can discuss giving the fund “the necessary strength.”
German officials have so far rejected using the ECB to increase the power of the bailout fund, warning it could push the central bank further into the realm of fiscal policy. Former German Finance Minister Hans Eichel nevertheless suggested today that the rescue fund be given “unlimited powers” to convince investors that leaders are determined to beat the crisis.
“If it had unlimited power, it would calm the market,” Eichel said at a panel discussion in Bloomberg LP’s London office organized by GLG Research. “The risk with unlimited powers is lower than if it has limited funds.”
Credit Crisis
U.S. Treasury Secretary Timothy F. Geithner, who said in an interview this week that Europe will adopt some of the same measures the U.S. used to combat its credit crisis, today predicted it will act “with more force” to end its troubles.
Until governments act, IMF Managing Director Christine Lagarde said in a Bloomberg Television interview with Tom Keene that the ECB must continue to provide “solid, reliable” funding for troubled economies.
In a sign currently-stronger economies may be willing to support the weak, finance officials from Brazil, Russia, India, China and South Africa -- the so-called BRICS -- said in a statement that they are “open to consider, if necessary, providing support through the IMF or other international financial institutions in order to address the present challenges to financial stability.”
There may be limits to what they’re willing to do. China can support the European and global economies only “at the margin” and Europe must find its own the solution to its crisis, Chinese central bank Deputy Governor Yi Gang said in Washington.
‘Decisive Action’
U.K. Prime Minister David Cameron and five other G-20 leaders wrote to French President Nicolas Sarkozy to urge him to use his chairmanship of the body to find agreement on “decisive action” to support growth.
The risk of not doing so was underscored by a fall in Treasury 10-year yields to a record and a dip in oil below $80 a barrel. The MSCI All-Country World Index extended its losses from its May peak beyond 20 percent and emerging-market stocks plunged the most in almost three years. FedEx Corp., an economic bellwether that delivers goods ranging from pharmaceuticals to financial documents, cut its full-year profit forecast as demand dropped in the U.S. and Asia.
“The world is in a danger zone,” World Bank President Robert Zoellick told reporters.
To contact the reporters on this story: Mark Deen in Washington at markdeen@bloomberg.net Shamim Adam in Washington at sadam2@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
Posts
No comments:
Post a Comment