The eurozone debt crisis abated slightly yesterday with an agreement on extra funds for the IMF, strong data from Germany and a good bond sale in Spain which boosted stocks and the euro.
...the US needs the eurozone to be a healthy trading partner
But the deal on funds for the International Monetary Fund fell short of targets, with Britain again shunning its neighbours.
And the Fitch ratings agency warned that the EU’s EFSF bailout fund could lose its triple A rating if its main sponsors Germany and France were downgraded.
IMF chief Christine Lagarde, speaking in Lagos, warned that because of a crisis of confidence and slowing growth, “currently the world economy stands at a very dangerous juncture”.
In London, top business leaders including the heads of Shell Virgin Group, Nomura and Rio Tinto insisted in a letter to the Daily Telegraph newspaper: “It is in Britain’s interest that the euro survives, and we therefore should do everything we can to ensure the necessary steps are taken to guarantee its viability”.
In Paris, French Budget Minister and government spokeswoman Valerie Pecresse said: “I have no doubt that Britain, once a certain number of G20 countries agree to fund the IMF, will come to the IMF’s aid”.
Eurozone chief Jean-Claude Juncker said the 17 countries that share the single currency had pledged €150 billion in bilateral loans for the IMF late Monday.
The European Union hopes the money can help stabilise the debt crisis in the eurozone.
But European Union leaders appealed at a December 9 summit for €200 billion, and Britain refused to stump up its share of roughly €30 billion.
After mixed messages also from European Central Bank chief Mario Draghi in a high-profile press interview and before a key European Parliament committee, Wall Street ended the day down 0.84 per cent in thin trading, with Europe’s main markets also down at yesterday’s opening.
“We will not contribute to anything that is only available to eurozone countries,” a British government official in London said.
“Nor will we participate in an increase in IMF resources that only comes from EU countries without the participation of other G20 countries outside the EU,” he added.
The IMF currently has less than €300 billion available for lending to countries that enter reform programmes.
Germany will provide €41.5 billion, France €31.4 billion, Italy €23.48 billion, Spain €14.86 billion, The Netherlands €13.86 billion and Belgium €9.99 billion.
Mr Juncker said Britain would “define its contribution early in the new year in the framework of the G20.”
But a senior EU official said Chancellor of the Exchequer George Osborne’s refusal to budge caused “bitterness” among counterparts, on tenterhooks after being put on a downgrade watch by international credit rating agencies.
One of the biggest, Fitch, has already warned that a meaningful solution to the debt crisis may prove “beyond reach” of the EU. The head of the German central bank said last week that its payout will be conditional on the United States and other major Group of 20 contributors taking a “fair” share of the burden.
“If large members, for example the US, were to say ‘we’re not taking part,’ then from our point of view it is problematic,” he said.
Russia last week suggested that it could contribute up to $20 billion in loans and investments via the IMF. But China, India and Brazil have yet to go that far.
Like other major economies, the United States needs the eurozone to be a healthy trading partner if worldwide recession in 2012 is to be avoided.
The latest sign that London is out of synch with broader EU goals came 10 days after Prime Minister David Cameron vetoed an EU treaty change and opted out of a pact to create a new “fiscal union.”
The first talks on designing a new legal framework for that new “union” within the EU started yesterday in Brussels.