✂ Fed’s first rate cut since 2020: Use our free Stock Screener to find new opportunities fastExplore for FREE

UPDATE 5-EU backs stronger IMF, eastern aid lifeline

Published 03/20/2009, 05:43 PM
TTEF
-

* EU summit agrees $100 bln new loans to IMF funding

* Brown says EU wants total IMF funds doubled

* IMF welcomes EU contribution, awaits moves from others

* Leaders agree to double crisis fund for eastern states

By Jan Lopatka and Frank Prenesti

BRUSSELS, March 20 (Reuters) - The European Union on Friday pledged more than $100 billion in new loans to the International Monetary Fund to bail out countries in the global recession and urged the G20 economic powers to help double its funding.

EU leaders also agreed at a summit to double to 50 billion euros ($68.5 billion) a crisis fund which can be used by struggling member states which do not use the euro currency and has already been tapped by Latvia and Hungary.

But as expected, they ignored U.S. pressure to raise the size of their economic stimulus plans and said the priority for now was to exercise budgetary restraint and tighten supervision of financial markets, products and centres.

"Europe's entire political leadership has chosen to seek ambitious results at the London summit," French President Nicolas Sarkozy told reporters.

Making clear the 27-nation bloc had gone through two days of difficult discussions at a summit that had little impact on financial markets, he said: "This is a clear position. It wasn't at all sure beforehand that we would get there."

The IMF has been stretched by making loans to countries such as Ukraine and Pakistan during the worst financial crisis since the 1930s and has asked for the funds it can use for bailouts to be increased to $500 billion.

"This is a major contribution to maintaining the stability of financial and capital markets," IMF chief Dominique Strauss-Kahn said in a statement, adding the EU and Japan, which also pledge $100 billion to the IMF, showed leadership.

British Prime Minister Gordon Brown, who hosts a summit of the Group of Twenty leading and emerging economies on April 2, said the new IMF loans were only for emergencies. Diplomats said the EU hoped to persuade China, Saudi Arabia and others to help.

"We hope that other countries may now provide their own support to our efforts to restore stability to the global economy," Strauss-Kahn said in the statement.

In the latest sign of the depth of the crisis, industrial output in the 16 countries in the euro zone fell 3.5 percent against December, making a 17.3 percent annual drop, official data showed on Friday.

A German parliamentarian caused a stir by saying the European Central Bank had a plan to prevent member states that use the euro going bankrupt, with Ireland and Greece the top candidates for aid. But EU leaders denied this.

"We intend managing our way through this difficulty," Irish Prime Minister Brian Cowen said. "This recession will pass as others have."

STANDING FIRM ON STIMULUS PLANS

Although the U.S. Federal Reserve pledged on Wednesday to pump $1 trillion into the U.S. economy on top of an existing $787 billion stimulus package, the EU leaders say their smaller stimulus plan is enough to combat the crisis.

Many analysts are unconvinced by EU efforts to combat a crisis that has pushed up unemployment and caused growing public discontent, including protests by up to 3 million peopple in France on Thursday.

"The IMF move is useful, but it could have been more," said Daniel Gros of the Centre for European Policy Studies.

On the European stimulus packages, he said: "I am not sure there is much more they can do at this stage which would have immediate effect -- except tax cuts, and we know that European consumers tend to save whatever they get in tax cuts."

Goldman Sachs called in a research note for a coordinated fiscal easing throughout the euro zone of 1.0 trillion euros this year and next -- compared to the current 400-billion-euro effort that includes the effect of added welfare spending.

In their summit declaration, the EU leaders underlined calls for tighter regulation to avoid a repeat of the crisis, urging "appropriate regulation and oversight of all financial markets, products and participants that may present a systemic risk".

"Everyone is in agreement about tax havens ... hedge funds, remuneration, stopping bank off-balance-sheets and the need for regulation," Sarkozy said of accounting practices, financial products and excessive pay blamed by many for the crisis.

But diplomats said the leaders agreed no EU state should appear on a blacklist of tax havens after a row between Germany and financial centres such as Switzerland and Luxembourg.

The leaders agreed a list of schemes to benefit from a further 5 billion euros of EU funds, including the Nabucco pipeline due to bypass Russia to bring Caspian gas to Europe.

They also agreed plans to bolster ties with Ukraine, Georgia and four other former Soviet republics, risking Russia's ire.

(Additional reporting by Ingrid Melander, Darren Ennis, David Brunnstrom, Kerstin Gehmlich, Estelle Chirbon, Pete Harrison, Huw Jones, Jan Strupczewski, Marcin Grajewski; writing by Mark John, editing by Timothy Heritage)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.