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G20 finance ministers tell eurozone to boost rescue fund

tn global rescue package hinges on action in Europe, before other countries would consider additional IMF contributions

Finance ministers from the world’s leading economies heaped pressure on the eurozone on Sunday to bolster the firewall around the embattled single currency before they agree to provide more funds for a planned tn (£1.3tn) global rescue package for the bloc.

At a summit in Mexico City of G20 finance ministers to discuss the plans, the chancellor, George Osborne, joined US treasury secretary Timothy Geithner and other leading ministers in calling on single currency members to put more funds into the European stability mechanism (ESM), the fund set up to bail out nations struggling with their sovereign debt, in order to stop the debt crisis spreading.

“What’s become clear at this meeting is that there really does need to be additional eurozone resources into their firewall before other countries in the world would even contemplate additional IMF resources,” Osborne said. “Until we see the colour of their money, I don’t think you are going to see any money from the rest of the world.”

Geithner said Europe had come a long way in laying the foundations for a “credible” crisis response but could not rest there, while Russia and Brazil also came out for more eurozone action. Brazilian finance minister Guido Mantega said: “Emerging countries will only help under two conditions: first that they strengthen their firewall, and second for the IMF [voting rights] reform to be implemented. I see most countries sharing a similar opinion that the Europeans have to strengthen their firewall.”

An agreement by Europe to merge its temporary bailout vehicle, the European financial stability facility, with the permanent one, the ESM, would create a tn war chest and open the door for other G20 countries to meet the IMF’s request for 0bn-0bn in new resources, on top of its current 8bn in funds. This would create around .95tn in firepower. Germany, the euro bloc’s paymaster, has so far resisted calls for a bigger ESM. However, its finance minister, Wolfgang Schäuble, whose government has taken a tough public line on aid for Greece, did hint that it could be reviewed when European leaders discuss the issue next month. It will also be debated at a European Union summit starting on Thursday.

“The month of March goes from March 1 to March 31. It will be reviewed again, also in the light of the developments that have since occurred, whether the stated dimension of the [European bailout] mechanism is enough or not,” Schäuble told reporters.

Some G20 negotiators were optimistic that Germany would soften its hard line in order to make the deal. “Everyone in the eurozone and even in the European Union is reasonably happy with combining the ESM and the EFSF, even Germany, but it is too early to say if this will be decided at the EU summit at the beginning of March,” said Margrethe Vestager, economy minister of current EU president Denmark.

The EU economic and monetary commissioner, Olli Rehn, was asked in Mexico on Sunday if he expected a deal to combine the funds at the summit. He said: “In the course of March I expect a result.”

Another important stage in finding a solution for the euro crisis will come on Wednesday when Mario Draghi, the president of the European Central Bank, makes another massive tranche of cheap money available to the eurozone’s struggling banks. The first so-called longer-term refinancing operation in December saw the ECB providing €498bn and has been credited with restoring calm to the financial markets. Some experts believe demand for the loans could be even higher this time, possibly reaching €700bn.

The German government faces public opposition to the €130bn bailout package for Greece agreed last week – the country’s second in two years – and has balked at enlarging Europe’s rescue fund on the grounds that it would undermine efforts to impose fiscal discipline on indebted countries.

The second Greek bailout package needs the approval of Germany’s parliament, the Bundestag. Politicians will vote on Monday and it is expected to pass with opposition support. However, a poll in the Bild am Sonntag newspaper on Sunday showed 62% of Germans oppose further aid for Greece. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds