UK fears a

19th December 2011

With the UK being called on to provide money to the eurozone through the IMF, it looks likely that the UK would be the equal second largest contributor along with France though behind Germany.

The call on the UK comes as EU finance ministers are attempting to create a euro 200 billion fund and have set today as the deadline for agreement on it.

However the Treasury line has not altered significantly in the last few weeks.

A Treasury spokesman says: "As a long standing supporter of the IMF, Britain stands ready to increase IMF resources alongside other countries around the world in order to help any country in distress. But we will only provide more resources for the IMF if the eurozone do more to strengthen their firewall, and we will not contribute to anything that is only available to eurozone countries. Nor will we participate in an increase in IMF resources that only comes from EU countries without the participation of other G20 countries."

Bloomberg notes that the crunch conference call will take place at 3.30pm Brussels time.

It quotes Carsten Brzeski, an economist at ING Group in Brussels saying: "They'll try to get as much done as they can before Christmas, but it's doubtful they'll put markets in a Christmas mood. There is still so much uncertainty."

Certainly the alternative action, the ECB buying substantial amounts of bonds of countries such as Spain and Italy appears to have been ruled out again by the European Central Bank boss Mario Draghi as this AFP report suggests.

Draghi said: "The important thing is to restore the trust of the people — citizens as well as investors — in our continent. We won't achieve that by destroying the credibility of the ECB."

He believes that the main bailout mechanism within Europe at least should be the European Financial Stability Facility.

However, elsewhere in the comment sphere two other views are emerging concerning the crisis – first that it may be more easily solved than people suspect. Simone Foxman on Business Insider suggested a few days ago that the ECB is already intervening and it is working evidenced by a fall in the cost of borrowing for peripheral Europe.

The second view is that if it is happening it won't work. The money from any easing in Europe by the ECB won't necessarily go to European sovereign debt but seek better and arguably less risky returns elsewhere as Reuters blogger Felix Salmon suggests. Of course, Draghi says it isn't happening anyway and wants this afternoon's agreement to stick and the UK won't pay until some very serious conditions are met. The betting must be on any deal being an imperfect one.

 

More from Mindful Money:

The IMF: Is it up to the job?

The Lost Decade – Is it all doom and gloom?

Reading List: Opportunities for Investors to Profit Despite Economy

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