Europe urged to beef up response to crisis

EUROPEAN policymakers criticised for failing to stem the eurozone debt crisis, face the tough task of stopping fallout from Greece’s near-bankruptcy from spreading into the world economy.

After being told by the US, China and other countries that they must try harder, European officials said they would work on ways to beef up their existing €440 billion rescue fund.

Deep differences remained over whether the European Central Bank (ECB) should commit more of its massive resources to the rescue fund to shore up Europe’s banks and help struggling eurozone countries.

Financial markets have plunged on concerns about the ability of Europe to get a grip on the crisis.

US Treasury chief Timothy Geithner said the ECB should take a more central role in fighting the crisis.

“The threat of cascading default, bank runs, and catastrophic risk must be taken off the table,” he said in a speech to the IMF on Saturday.

Europe came under fresh pressure yesterday to ramp up its crisis response when a top IMF official said the ECB was the only player big enough to “scare” financial markets which have punished several eurozone countries.

However, Germany and many top officials within the ECB itself are wary about the central bank being drawn more deeply into supporting Greece and other debt-stricken states.

“The ECB is the only agent that can really scare the markets,” said Antonio Borges, the head of the IMF’s European department at a gathering of top economic policymakers from around the world.

Greece, the country at the epicentre of the crisis, is trying to secure the latest wad of cash from international lenders next month, including the IMF, to avoid default.

Greece’s finance minister Evangelos Venizelos, speaking to bankers in Washington yesterday, said the country was determined to stay the course of its tough austerity plan to meet terms of its bailout package.

He complained the outside world did not understand the severity of the measures that Greece is taking by cutting pensions, salaries and public spending but he insisted the country will “make it” through the crisis.

“Greece is not the scapegoat of the euro area or the international economy,” Mr Venizelos said.

IMF and European negotiators are frustrated at what they say is Greece’s slow reform pace.

Mr Venizelos is due to meet IMF chief Christine Lagarde, who this weekend pressed Greece hard on meeting the terms of its rescue plan.

The EU and IMF have already bailed out Greece, Portugal and Ireland, and officials want to stop the crisis from spreading to Italy, Spain and possibly beyond.

The IMF’s Borges said it was essential to combine the ECB’s potential crisis-fighting power with Europe’s €440bn bailout fund to deliver the necessary force to quell the crisis. However a number of ECB officials have voiced reluctance.