Finnish Prime Jyrki Katainen said he’s confident the International Monetary Fund will top up Europe’s $1 trillion dollar rescue funds.
“I’m quite sure the IMF will increase the firewall,” Katainen said in an interview with Bloomberg TV in London today. “I am eager to await how much the IMF is ready to do.”
Even though European governments today capped fresh lending at 500 billion euros ($667 billion) after a Germany-led coalition opposed a further increase of the region’s aid package, the “firewall is high enough” and “credible,” Katainen said.
Policy makers are trying to strike a balance between meeting international demands for a more powerful war chest to shield Italy and Spain, and opposition in donor countries to providing additional aid for underperforming economies on the currency bloc’s fringes.
Adding the 300 billion euros already committed to Greece, Ireland and Portugal since 2010, euro-area finance ministers put the total size of the firewall at 800 billion euros. In a statement, they ruled out using the 240 billion euros left in the temporary rescue fund to go beyond that.
Katainen said further boosting the funds would start “causing harm to the countries” as “markets are sensing that liabilities are too much for some countries; then it doesn’t help anybody.”
Euro-region national central banks plan to steer 150 billion euros to the IMF as a down-payment toward other countries chipping in. That sum was left out of Europe’s firewall calculation because it would be managed by the global powers that run the Washington-based IMF.
Asked what would happen if the IMF doesn’t come up with further funds, Katainen said that he would “hope for instance that the U.K. could participate.” For now the “British government has not been asked yet.”
Katainen also called on countries in southern Europe to proceed with austerity measures and structural changes to help them regain competitiveness and boost economic growth.
“If southern European countries don’t have better competitiveness, then nothing will really change,” he said.
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