IMF Approves New Credit Line to Bail out Europe, US on the hook for bill

xmaspoo · Nov 22, 2011

UPDATE: IMF Approves New Credit Line That Could Be Used In Europe - WSJ.com

WASHINGTON (Dow Jones)--The International Monetary Fund said Tuesday it approved two new lending tools that can better help countries cope with economic crisis.

The new Precautionary and Liquidity Line can be used in broad circumstances, "including as insurance against future shocks and as a short-term liquidity window" between six months to two years. A country can now borrow up to ten times its contributions to the IMF to help pay its bills.

The credit line can "address the needs of crisis bystanders during times of heightened regional or global stress and break the chains of contagion," the fund said.
Europe's sovereign-debt crisis is fast accelerating into economists' worst nightmare--a new financial meltdown that reverberates around the globe and a decade-long recession for the euro zone. Earlier this month, world leaders at a summit of the Group of 20 industrialized and developing nations asked the IMF to create the new credit line to help bolster the fund's crisis management.

"The Fund has been asked to enhance its lending toolkit to help the membership cope with crises," said IMF chief Christine Lagarde in a statement. "We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership."
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The new credit line could ostensibly be used for countries such as those in Eastern Europe that are facing the fallout of the sovereign-debt crisis in Greece, or even core nations such as Italy or Spain that vow to strengthen their economic policies.

Still, the financing is aimed more at what the fund calls "crisis bystanders"--countries that have been swept up in the turmoil rather than the ones that have helped cause it. Like the little-used Precautionary Credit Line it replaces, the new credit line would be available to countries that have relatively strong policies but remain vulnerable to external shocks.

While the news helped U.S. stocks recoup some of their earlier losses, some market participants warned the new lending tool isn't likely to do much to address Europe's problems.

"It's good to see someone acting at the current time," said Charles Robertson, global chief economist at Renaissance Capital in London. "But it is not clear that this money is on offer to those who need it," such as Italy and Spain.
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Although teetering on the brink of economic collapse as borrowing costs surge and growth forecasts erode, Italy rejected an offer by the IMF to open a precautionary credit line. Instead, Italy allowed for IMF monitoring of its promised economic reform. Some economists, however, say the monitoring may ultimately turn into a loan program. If Italy were to apply for the new precautionary credit line, for example, it could borrow up to EUR90 billion to help meet its debt needs. While that could help, it's still only a fraction of Rome's obligations.

Robertson said it would be a positive surprise if Hungary was able to access the credit, though not his expectation.

Hungary sought assistance from the IMF and European Union this week to reassure investors, though made it clear that it didn't intend to draw down on any money. Hungary's economy ministry has said it is looking for a precautionary, insurance-type backing with few strings attached.

The IMF also created a new Rapid Financing Instrument "to support a full range of urgent balance-of-payment needs, including from exogenous shocks," designed to help countries such as those in the Middle East and North Africa region suffering from major political and economic turmoil.

The fund's Flexible Credit Line--which provides backstop liquidity for countries with strong fundamentals--remains in place. Mexico, Poland and Colombia are the only three countries to have taken advantage of that precautionary financing.
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And you thought the U.S. wouldn't get dragged into the Eurozone debacle? Guess again, 17% of IMF funding comes from the U.S.

Tis the season, more bailouts for the bankers at the expense of the taxpayer.

TheAtmansPath · Nov 23, 2011

This sounds like a good plan.

Irishchoctaw · Nov 23, 2011

TheAtmansPath said:

This sounds like a good plan.
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Al Swearengen · Nov 23, 2011

i know what could really get things going in the economy, how about we borrow billions more from foreign country's and give it to other foreign countries, yeah that should do it!

xmaspoo · Nov 23, 2011

Al Swearengen said:

i know what could really get things going in the economy, how about we borrow billions more from foreign country's and give it to other foreign countries, yeah that should do it!
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Next time I go to the bank I'm going to ask for 3 new credit cards, b/c I'm trying to stimulate my local economy

xmaspoo · Nov 29, 2011

Europe struggles with rescue fund, may turn to IMF - Yahoo! Finance

BRUSSELS/MILAN (Reuters) - Euro zone ministers struggled to ramp up the firepower of their rescue fund and looked to the IMF for more help on Tuesday after Italy's borrowing costs hit a euro lifetime high of nearly 8 percent.

Two years into Europe's sovereign debt crisis, investors are fleeing the euro zone bond market, European banks are dumping government debt, deposits are draining from south European banks and a looming recession is aggravating the pain, fueling doubts about the survival of the single currency.

Italy had to offer a record 7.89 percent yield to sell 3-year bonds, a stunning leap from the 4.93 percent it paid in late October, and 7.56 percent for 10-year bonds, compared with 6.06 percent at that time.

The yields were above levels at which Greece, Ireland and Portugal applied for international bailouts, but European stocks and bonds rallied in apparent relief at the strong demand, with the maximum 7.5 billion euros sold.

"In an ideal world, these yields ... would serve to give the Ecofin/Eurogroup a sense of added urgency, but this is a far from ideal world," said Peter Chatwell, rate strategist at Credit Agricole in London.
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The euro had earlier dipped on a report in business daily La Tribune that ratings agency Standard & Poor's would lower its outlook on France's AAA credit rating to negative within 10 days, dealing a potential body blow to the euro zone's ability to rescue heavily indebted countries.

LOOKING TO IMF IF EFSF FALLS SHORT

In Brussels, Eurogroup ministers were expected to approve detailed plans to bolster their bailout fund to help prevent contagion in bond markets, but looked set to fall short of market expectations.

Ministers said the International Monetary Fund may have to provide more help, possibly bolstered with more European money.

"We will have to look at the IMF which can also make available additional funds for the emergency fund. I think countries in Europe and outside of Europe should be prepared to give more money to the IMF," Dutch Finance Minister Jan Kees de Jager told reporters.
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The ministers will agree details of leveraging the European Financial Stability Fund (EFSF) so it can help Italy or Spain should they need aid, although worsening market conditions mean it is likely to fall short of the original 1 trillion euro target.

The report about France's credit rating came at a delicate time. Paris is the second largest guarantor of the EFSF bailout fund, and one of only six AAA states in the euro zone. S&P declined comment.

Officials said the leveraging mechanisms could become operational in January, but that may be too late.

"We have talked about leverage though private money, but it would be two or two and a half times an increase so not sufficient and we have to look for other solutions to compliment the EFSF and that in my mind will be the IMF," de Jager said.

With Germany opposed to the idea of the European Central Bank providing liquidity to the EFSF or acting as a lender of last resort, the euro zone needs a way of calming markets and the ECB shows no sign yet of responding to widespread calls to massively increase its bond-buying.
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One option EU sources said is being is explored is for euro system central banks to lend to the IMF to aid Italy and Spain.

"We will discuss with the ECB. The ECB is an independent institution, so we will put on the table some proposals and after that it is for the ECB to take the decision," Belgian Finance Minister Didier Reynders told reporters.

The ECB failed for the first time since May to fully offset 203.5 billion euros in euro zone government bond purchases, adding to fears that the debt crisis is ratcheting up stress on the bloc's banking sector.

A Reuters poll of economists showed a 40 percent chance of the ECB stepping up bond-buying with freshly created money within six months, something it has opposed.

The poll forecast a 60 percent chance of an ECB rate cut to 1.0 percent next week and a big majority of economists said they expect the central bank to announce new long-term liquidity tenders to help keep banks afloat at its December 8 meeting.
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MONTI TO UNVEIL HIS PLANS

New Italian premier Mario Monti was to outline his fiscal and economic reform plans to the Eurogroup of 17 euro zone finance ministers amid reports, officially denied in Rome and Washington, of a possible impending approach to the IMF.

Italy has a 1.9 trillion euro debt pile - equivalent to 120 percent of national output - and needs to refinance some 340 billion euros of maturing debt next year with big redemptions starting in late January. It has promised to balance its budget in 2013 but Tuesday's auction suggested it will struggle to keep borrowing costs under control without international help.

Italian daily La Repubblica said EU Economic and Monetary Affairs Commissioner Olli Rehn would tell euro zone ministers that Italy needs to introduce extra fiscal measures worth 11 billion euros immediately to meet its target.

The euro zone ministers are also set to release a long-delayed 8 billion euro loan installment for Greece, vital to stave off bankruptcy in December and buy time for negotiations on an uncertain second bailout program for Athens.

Most analysts say more profound measures are now needed, most involving more action from the ECB and an agreement eventually to issue common euro zone bonds, something Germany has opposed.
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Berlin has pinned its efforts on a drive for closer fiscal integration among euro zone members.

German Chancellor Angela Merkel will not make a deal at a December 9 European Union summit to stop resisting joint issuance of euro zone bonds in exchange for progress on strengthening fiscal rules, German MPs quoted her as saying.

She told a closed-doors meeting Europe was "a long way from euro bonds," suggesting they may not be ruled out forever.

For now, Germany and France are pressing for coercive powers to reject euro zone members' budgets that breach EU rules, alarming some smaller nations who fear the plans by-pass mechanisms for ensuring equal treatment.

Berlin and Paris aim to outline proposals for a fiscal union before the EU summit that is increasingly seen by investors as possibly the last chance to avert a breakdown of the single currency area.

Poland's Foreign Minister Radoslaw Sikorski made an appeal for Germany to show more leadership in the crisis.

"You know full well that nobody else can do it," he said in a speech in Berlin on Monday evening.

"I will probably be the first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity. You have become Europe's indispensable nation."
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iCremateCanabis · Nov 29, 2011

Euro Nations Renew Talk of IMF Role - Bloomberg

“We envisage a larger role for the IMF,” said Dutch Finance Minister Jan Kees de Jager. “It could be through a general increase of resources. It could be through new arrangements to borrow. And it should come from both Europe and non-European countries. The situation is quite urgent and we need solutions.”

Europe’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis.
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Johnny Cash · Nov 29, 2011

iCremateCanabis said:

Euro Nations Renew Talk of IMF Role - Bloomberg

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Lol, fuck our politicians.
Oh and sorry about our fuck ups, America. You don't have to help if you don't want to.

Felt · Nov 29, 2011

How will increasing the credit limit of a nation help alleviate its debt?

Deleted member 472633 · Nov 29, 2011

If were going to bail out europe, I want my own European! I say every american gets one European of their choice as sort of a house pet.

(yes i'm pretty stoned) But its stilll an awesome idea!

Lay Low · Nov 29, 2011

Same old shit. The world wants to keep printing money, no surprises ever come from the Fed, ECB, IMF, etc.

xmaspoo · Nov 30, 2011

Johnny Cash said:

Lol, fuck our politicians.
Oh and sorry about our fuck ups, America. You don't have to help if you don't want to.
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It's ok, we are in just as bad of shape as the eurozone.

We should fix our own messes separately, and without EU selected technocrat heads of state never voted into office.

Johnny Cash · Nov 30, 2011

xmaspoo said:

It's ok, we are in just as bad of shape as the eurozone.

We should fix our own messes separately, and without EU selected technocrat heads of state never voted into office.
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Good idea. Good luck to you.

Johnny Cash · Nov 30, 2011

James2912 said:

If were going to bail out europe, I want my own European! I say every american gets one European of their choice as sort of a house pet.

(yes i'm pretty stoned) But its stilll an awesome idea!
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Will you give me food and weed? I'd just chill on your couch like a cat.

BigB8140 · Dec 5, 2011

Dam xmaspoo how do you sleep at night with all this knowledge of finance and politics. It infuriates me to no end. And I'm not as knowledgeable as you. and you just seem to be on top of every headline and on the front lines of many Ron paul "debates". Thanks man your the best source of news I got! +rep

Johnny Cash · Dec 5, 2011

BigB8140 said:

Dam xmaspoo how do you sleep at night with all this knowledge of finance and politics. It infuriates me to no end. And I'm not as knowledgeable as you. and you just seem to be on top of every headline and on the front lines of many Ron paul "debates". Thanks man your the best source of news I got! +rep
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You just gotta appreciate what you have and realize that there will always be trouble in the world that is beyond your control. Don't consider yourself to be in a bad situation when you have food, water and shelter because you could have just as easily been born in Somalia.

Grizmoblust · Dec 5, 2011

Hey don't make fun of Somalia!

Don't make me to get Somalia back into shape and round kick your face.

xmaspoo · Dec 5, 2011

BigB8140 said:

Dam xmaspoo how do you sleep at night with all this knowledge of finance and politics. It infuriates me to no end. And I'm not as knowledgeable as you. and you just seem to be on top of every headline and on the front lines of many Ron paul "debates". Thanks man your the best source of news I got! +rep
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Everyone has their hobbies. Most everyone can see that our world is corrupt and doesn't serve the interest of the majority, yet very few understand the inner workings. Understanding the who what where when how and why is what makes me tick.

gedio · Dec 5, 2011

I really want to go back in time and show this situation to everyone saying "there is no good reason for Britain to not adopt the euro."

aaronman · Dec 5, 2011

Johnny Cash said:

Will you give me food and weed? I'd just chill on your couch like a cat.
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lol'd.

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