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IMF seeks major reform effort
Geithner presses eurozone for stronger steps against debt
Question of the Day
The International Monetary Fund, armed with a replenished arsenal containing billions of dollars to battle Europe’s lingering debt crisis, now must press governments in the eurozone to carry out bold changes to reassure nervous financial markets and avoid sending the crisis into a more dangerous phase.
The IMF’s final communique Saturday after hours of high-level meetings in Washington did not go beyond saying that structural reforms were needed to restore fiscal health and spur economic growth in the 17 countries that use the euro.
But U.S. Treasury Secretary Timothy F. Geithner told the IMF policy-setting panel that Europe needs to be more creative and aggressive in fighting its debt crisis, employing all the financial resources at its disposal, including the European Central Bank.
“The success of the next phase of the crisis response will hinge on Europe’s willingness and ability to apply its tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of the markets,” Mr. Geithner said.
German Finance Minister Wolfgang Schaeuble said the countries experiencing financial crisis in Europe are undertaking far-reaching reform measures.
“This includes labor markets, social security systems, public administrations and financial market institutions,” he said. “This will allow countries to regain competitiveness and strong growth. It is the only way we will be able to restore confidence of our citizens and investors.”
During the weekend meetings of the IMF and its sister institution, the World Bank, finance ministers and central bank governors said the threat of a sharp global slowdown had eased, but still used words like “weak,” “fragile” and “challenging” to describe the outlook for the future.
The major accomplishment of the weekend was the pledge of at least $430 billion from individual countries that will nearly double IMF’s reserves available for loans to almost $1 trillion.
“It is nice to have a big umbrella or a big firewall,” IMF Managing Director Christine Lagarde told reporters at a news conference wrapping up the discussions.
She and other officials said the extra resources should reassure financial markets that have been worried in recent weeks that Spain could be the next country in need of emergency loans from the IMF to escape a default.
The IMF, working with European governments, has provided rescue programs already for Greece, Portugal and Ireland, but Spain has a much bigger economy and would require much more financial support should it become unable to sell its government bonds to private investors.
The U.S. and Canada were two rich countries that did not make pledges. The U.S. would face problems winning support for increased support for the IMF and Canada expressed the view that Europe, as a rich continent, had sufficient resources to deal with its debt problems.
“They need to step up to the plate and overwhelm this issue with their own resources,” Canadian Finance Minister Jim Flaherty told reporters.
Ms. Lagarde said Russia, India, China and Brazil had made private pledges but did not want to make public commitments until they had conferred with officials back home. This group has pushed for the IMF to put in place a 2010 agreement giving fast-growing, emerging economies such as theirs more of a voice in the agency’s decision-making.
The IMF has struggled to find agreement because Europe will have to give up some of its voting power and seats on the 24-member executive board. At the moment, Europe controls eight; the expectation is that it could lose perhaps two.
Brazilian Finance Minister Guido Mantega said in his speech to the IMF committee Saturday that the resistance of some countries to the change in voting power had been “deeply damaging to this institution.”
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