BERLIN: The leaders of Germany, Britain, France and other European nations called Sunday for the resources of the International Monetary Fund to double, to $500 billion, to help head off new problems in countries already hit hard by the global economic and financial crisis.| And where does the IMF get its money? |
In Germany, a growing unease that the crisis is about to strike close to home has contributed to a shift in the country's reluctance to bankroll efforts to ease the financial crisis -- whether in the form of bank bailouts or stimulus packages -- for fear of paying for other countries' mistakes. German officials appear to have concluded that their own economy, underpinned until recently by booming exports, cannot stay afloat if its neighbors crash. Also, international officials from the IMF and the World Bank have argued strongly in private to German officials that Berlin was underestimating the extent to which the crisis was tearing at the hard-fought economic integration of Europe.
In eastern Europe, currencies have tumbled sharply against the euro as financial markets bid up the odds of an all-out collapse along the lines of Asian countries in the late 1990s. Already, Hungary and Latvia, both European Union members that do not use the euro, have gotten rescue packages from the IMF and the European Union.
And among the countries that use the euro, particularly Greece and Spain, financial chaos has meant that government borrowing costs have grown in relation to stalwarts like Germany.
The French president, Nicholas Sarkozy, endorsed support for fellow European countries on Sunday, while warning that those in need of help will have to revamp policies. "If someone needs solidarity they can count on their partners," Sarkozy said at the conclusion of the economic summit meeting here. "Their partners also need to count on them to follow certain basic rules."
Last week Peer Steinbrück, the German finance minister, suggested that Germany would help finance rescues if necessary, despite European treaties designed to promote fiscal self-reliance.
Those developments foreshadow difficulties this year for countries that must borrow on international capital markets to refinance old debt and raise fresh cash.
Between expressions of solidarity and a newfound emphasis on the IMF, the European leaders appeared to be corralling the resources, both political and financial, that would allow bailouts of additional European countries if needed. Economists believe the presence of a credible rescue framework would convince financial markets to ease pressure on the countries, eliminating the need for emergency action.
Daniel Gros, director of the Center for European Policy Studies in Brussels, said the shift in Berlin and Europe more generally "opens the door to German dominance" of politics in the 27-nation European Union since its financial heft is likely to become vital for weaker neighbors as the crisis drags on. "The Germans are now in the position to say 'I'll rescue you, but you better follow the rules,' " Gros said. "We are at the beginning of a new game."
European leaders in Berlin also directed their finance ministers to study the creation of a common bond issue among the 16 countries that use the euro, a move that would partially extend Germany's sterling credit rating to its shakier neighbors.
The meeting, which also included leaders from Italy, Spain, the Netherlands and the Czech Republic, the current holder of the European Union's rotating presidency, was intended to hammer out a common European position ahead of the April meeting of the G-20, the group of industrialized economies and developing countries, in London.