Analysis: Uneasy role for IMF in euro zone crisis

Tue Oct 2, 2012 1:33pm EDT
 
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By Lesley Wroughton

WASHINGTON (Reuters) - The euro zone debt crisis is pushing the International Monetary Fund into new, and at times, uncomfortable territory. The global lender is preparing to monitor some of Europe's largest economies possibly without its biggest weapon - money.

The IMF lacks the financial heft to come to the aid of economies the size of Spain or Italy on its own, even though its monitoring and enforcement role would be in demand.

Can it impose sufficient conditions on a large European country to effect change and preserve its credibility, without any funds?

"One difficulty for the IMF is that, throughout the past two years, in order to maintain the political coalition for bailouts in Europe, they have been prepared to do things that they would never have accepted if they had vantage over it themselves," said Fredrick Erixon, director of the Brussels-based European Center for International Political Economy.

European Central Bank chief Mario Draghi has said IMF help will be sought to both design conditions and monitor programs for euro zone nations that want the ECB to step in to buy their bonds to lower their borrowing costs.

Spanish Prime Minister Mariano Rajoy said last month he has no objection to IMF monitoring, but also insisted he did not want it making fresh demands for a further tightening of Spain's budget. Spain is widely expected to be the test case for the ECB's new euro zone rescue plan, and some investors think Italy could follow.

BITTER PILL

Until the euro zone crisis erupted, most of the IMF's bailouts focused on emerging economies in Asia and Latin America. Europe's crisis presents a case much larger and potentially more damaging to the global economy than anything the IMF has previously overseen.   Continued...

 
IMF Managing Director Christine Lagarde attends a news conference after a Eurogroup meeting in Brussels February 21, 2012. REUTERS/Yves Herman