Finance ministers, seeking to prevent another global recession, increased pressure on European countries to resolve their debt crisis by coming up with a bold rescue plan, but there were indications of further divisions ahead over what new actions to take.
Officials from the U.S. and other countries outside of Europe, concerned at the impact the crisis is having on their own economies and jittery financial markets, told their European counterparts time is running short to prevent potential domino-style defaults in Europe.
“The threat of cascading default, bank runs and catastrophic risk must be taken off the table,” U.S. Treasury Secretary Timothy Geithner told his colleagues Saturday at the annual meeting of the International Monetary Fund. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets more severe.”
He said European governments needed to join with the European Central Bank to provide stronger support to calm market fears and not work at cross purposes.
Mark Carney, the head of Canada’s central bank, suggested “overwhelming” the problem by more than doubling the current euro rescue fund, increasing its size to 1 trillion euros, an amount that would equal $1.35 trillion. German Finance Minister Wolfgang Schaeuble, who leads the eurozone’s largest economy, and British treasury chief George Osborne also indicated they favour boosting the rescue fund’s firepower.
U.S. and global financial markets have experienced intense volatility in recent days over concerns that Greece is in danger of defaulting on its debt and that this would put further strains on major European banks that carry large Greek debt in their books.
The crisis could then drag in other heavily indebted European nations, including Portugal and Ireland, and even bigger economies such as Italy and Spain.
The IMF panel, which sets policy for the 187-nation financial institution, ended its discussions Saturday with a pledge to work decisively and in a coordinated way to deal with Europe’s debt crisis.
The IMF statement echoed pledges of increased support made Thursday by the finance ministers of the Group of 20 major economies. But both statements were vague on what form additional support would take.
“Today, we agreed to act decisively to tackle the dangers confronting the global economy,” new IMF Managing Director Christine Lagarde told reporters at a closing news conference.
The European debt crisis was the first challenge Ms. Lagarde faced as she took over the IMF job in June, but she had grappled with it before when serving as France’s finance minister and thus knows the intricacies.
Ms. Lagarde refused to comment on reports that holders of Greek bonds may be forced to accept bigger losses on their holdings as a condition by other governments if they are to supply further support to Greece to meet its debt payments.
She said it was important for the 17 governments that use the euro to meet the commitments they made in July, when they decided to give the eurozone bailout fund new pre-emptive powers and reached a deal on a second bailout for Greece
“It’s implementation first and foremost,” Ms. Lagarde said. “No qualification.”
Greek Finance Minister Evangelos Venizelos also ruled out a debt default, saying Saturday that his country was working hard on implementing the July decisions.
“Greece is never going to default because that would have been catastrophic for the euro area and for many other countries beyond the euro area,” he said in a statement.
The three days of discussions wrapped up late Saturday with a meeting of the Development Committee, which sets policy for the World Bank.
World Bank President Robert Zoellick announced at a final news conference that the World Bank planned to triple to $1.88 billion the amount of humanitarian support the bank is providing to countries in drought-ravaged areas of the Horn of Africa. The World Bank has estimated that more 13 million people in the region are in need of humanitarian assistance. Zoellick said the increased support was aimed at trying to prevent the current humanitarian crisis “should not and need not be a perpetual crisis.”
