Canada’s not alone in its resistance to commit more money to the International Monetary Fund’s efforts to combat a European debt crisis, says Federal Finance Minister Jim Flaherty.
The U.S. and several other countries have also ruled out doling out to the IMF, which succeeded last week in securing an additional US$430 billion to its euro-zone bailout fund. Director Christine Lagarde and other officials said the extra resources should reassure financial markets.
“I can assure you there’s not a uniformity of opinion on the subject [of supporting the IMF],” says Flaherty. “Europe needs to step up to the plate and overwhelm this issue with their own resources.”
The debate’s ongoing since the IMF traditionally helps countries in the most desperate straits. Flaherty and several others say the Eurozone, which contains some of the world’s wealthiest countries, like Germany, doesn’t qualify.
Flaherty insists every country borrowing from the fund get the same treatment, suggesting European countries currently have an advantage over emerging economies. He suggested the troika created by the IMF, the European Central Bank and the European Commission stack the deck in favour of the Eurozone.
He adds the IMF should be directing struggling countries, not working with them, as it has in the past with nations like Mexico and Argentina. Additionally, the IMF should adopt a more stringent approval process for its initiatives. “By creating a super-majority approval process instead of a 50% -plus-one vote, this could be achieved,” says Flaherty.
U.S. Treasury Secretary Timothy Geithner told the IMF policy-setting panel, “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.”
German Finance Minister Wolfgang Schaeuble, who completely disagreed with Flaherty’s view, said the countries experiencing the financial crisis in Europe are undertaking far-reaching reform measures.
“This includes labour markets, social security systems, public administrations and financial market institutions,” he said. “The reforms will restore the confidence of our citizens and investors.”
The IMF, working with European governments, has provided rescue programs already for Greece, Portugal and Ireland. Spain, however, has a much bigger economy and will require more financial support if it’s unable to sell its government bonds.
Lagarde said Russia, India, China and Brazil had made private pledges. This group has pushed for the IMF to put in place an agreement giving fast-growing, emerging economies such as theirs more of a voice in the agency’s decision-making.
Of the more than $430 billion in increased support that the IMF raised, the agency released a list of specific commitments from 12 individual nations. Japan gave $60 billion, the Czech Republic gave $2 billion, and the biggest total amount was $200 billion pledged back in December by Europe.