IMF: Increase rescue fund

The head of the IMF has called on EU governments to boost the size of their rescue fund and consider financial risk-sharing steps such as common eurozone bonds as a way out of their sovereign debt crisis.

In a speech at the German Council on Foreign Relations yesterday, IMF managing director Christine Lagarde said the world economy faced a defining moment requiring quick, collective action.

She urged leading powers to back a resource rise for the lender to help fill a global financing hole the IMF thinks could reach €774 billion.

“The longer we wait, the worse it will get. The only solution is to move forward together,” Ms Lagarde said. “We must all understand that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral,” the IMF boss added.

Eurozone members have agreed to inject close to $200bn to the rescue fund, but the US, Canada, China and Japan have been cool on channelling more funds to the IMF.

Ms Lagarde said the IMF wants to increase its lending resources by up to $500bn, including funds Europe has already pledged.

She praised eurozone governments’ decisions to enforce stricter fiscal discipline and an ECB move to provide long-term liquidity to banks, but said these were mere pieces of a comprehensive crisis solution.

She urged EU leaders to complement the “fiscal compact” they agreed last month with some form of financial risk-sharing.