Arming The Bazooka?

Well, this one is just too good to miss, since it seems to have appeared online a matter of minutes after I put up my last post:

IMF to Seek $1 Trillion Boost Amid Euro Crisis

The International Monetary Fund is proposing a $1 trillion expansion of its lending resources to safeguard the global economy against any worsening of Europe’s debt crisis, according to an official at a Group of 20 nation.

The Washington-based lender is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors, according to the official, who spoke on condition of anonymity because the talks are private. The fund wants the agreement struck at the Feb. 25-26 meeting of G-20 finance ministers and central bankers in Mexico City, the official said.

IMF Managing Director Christine Lagarde said yesterday her staff are studying options to increase the fund’s war-chest beyond the current $385 billion. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the U.S. has said it has no plans to make new bilateral loans and G-20 leaders ended last year at odds over the issue.

I do hope they aren’t telling the Chinese, Brazilians, Indians etc that the more money they put up the less likely it is to be used. (For further clarification on what this is all about, see here)

And as if to “ready up” potential funding participants for the IMF the World Bank has issued this warning to emerging economies.

Developing countries should take steps to plan for a global economic meltdown on a par with 2008-09 if the European sovereign debt crisis escalates, the World Bank warned on Wednesday in its latest economic forecasts. Predicting significantly slower global growth in 2012 than it expected last summer even if the eurozone muddles through its crisis, World Bank economists said that if financial markets deny funds to eurozone economies, global growth would be about 4 percentage points lower than even these figures, with poorer economies far from immune.

Andrew Burns, head of macroeconomics at the Bank, told journalists in London: “Developing countries should hope for the best and prepare for the worst.” Stressing the importance of contingency planning, he added: “An escalation of the crisis would spare no one. Developed and developing-country growth rates could fall by as much or more than in 2008-09.”

“The motor of the global economy – developing nations – is slower at the same time as the world’s largest economic area – the EU – is in recession and these could feed on each other,” Mr Burns said.

If such a vicious circle were to develop, developing countries would find it impossible to decouple from European woes, he added. Many would be affected by falling oil and commodity prices, remittances sent home from workers in rich countries could fall more than 5 per cent along with income in rich countries, banking systems in poor countries would be vulnerable to financing risk as many developing countries have significant short-term debt falling due in 2012 and a confidence crisis would also hit spending in rich and poor countries alike.

Edward Hugh, head of global economic strategy on Facebook said, “Threatening people with dire consequences seems to be in fashion these days. Mario Monti is telling Angela Merkel she could face a populist revolt on the periphery if she doesn’t help him, while the World Bank seem to be warning the poor countries that if they don’t go along with the IMF whipround they could become ever poorer.”

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

2 thoughts on “Arming The Bazooka?

  1. Pingback: Comment « A Serious Look At Life

  2. I feel we’re seeing a sovereign debt crisis in the Western industrialized countries, mainly due to the economies not growing. The acronym FIFO comes to mind: first in, first out. Europe has gone through the wringer first, and has taken the bitter austerity medicine. Other countries are still hoping they will escape their fate.

    Japan risks falling into a similar sovereign-debt crisis as Europe if it doesn’t get the world’s “worst” public debt situation in order, a former finance minister said.

    “What’s happening in Europe could take place someday in Japan,” Hirohisa Fujii, chairman of the ruling Democratic Party of Japan’s tax commission, said at the Foreign Correspondents’ Club of Japan in Tokyo today. “Politicians must understand Japan has the world’s worst debt situation.”

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