G20 fails to reach agreement on IMF resources

4th November 2011

Zero Hedge's Tyler Durden is reporting that German Chancellor Angela Merkel believes they have failed to come to an agreement.

He now wonders where any extra financial support will come from and suggests people will start talking about China putting money into the European Financial Stability Facility, a view he believes has little credibility.

Not so, says Yahoo Finance which reports that EU President Herman Van Rompuy says the leaders have agreed to increase resources just not quite how yet.

The Wall Street Journal reports that one option is to "ask the IMF to print more of its Special Drawing Rights-essentially an IOU that countries can exchange for cash"

The paper adds that the SDR issue might have totalled $250 billion to boost the European Financial Stability Facility, the euro zone's bailout fund.

The UK Chancellor George Osborne is facing a small political storm at home. Backbench Tory MPs have been increasingly vocal about increasing the UK's IMF contribution suggesting it could mean British backdoor financial support for the eurozone and that does not make them happy.

The BBC reports the Chancellor as saying: "Alongside our international partners, we have to make sure that the international institutions of the world like the IMF, which help countries across the globe, are ready to withstand global shocks. It potentially means an increase in resources for the IMF, not just from Britain but from many other countries. I am not suggesting that Britain should contribute disproportionately, in other words out of kilter which what the kind of contributions it has made in the past. I am not saying Britain should go out on a limb. Britain will be acting in concert with other countries."

However the IMF is also thought to be involved with Italy – not in providing money – but in helping to oversee budget cutting measures as Reuters reports here.

Meanwhile, the Greeks may be denied a referendum but will they exercise their democratic rights in a different way by pulling their remaining money out of Greece's banks?

Henderson's chief economist Simon Ward, writing on Mindful Money, says the problem of capital flight out of Greek banks has the ECB on the horns of a massive dilemma.

"Euro system lending is against collateral on which haircuts have been applied while the ECB's purchases of Greek government bonds were made at a large discount to par. The mark-to-market value of these assets in the event of a disorderly EMU departure, however, would probably be no more than half of the current balance sheet amount. The Eurosystem, in other words, could suffer a loss of about €100 billion, assuming exposure of €200 billion (i.e. lending to the Bank of Greece of more than €150 billion plus bond purchases of €45 billion). This compares with capital and reserves of €81.5 billion but additional revaluation gains (on gold and foreign exchange) of €383.3 billion – convertible, presumably, into capital in an emergency," he writes.

 

More from Mindful Money:

The aims and failures of the eurozone

Reading List: Has Greece destroyed Europe's future? (Video edition)

A plan for reforming the Italian economy and the International Monetary Fund

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