MILAN/MEXICO CITY (Reuters) - Some of the world’s biggest economies want to move quickly on a cash injection for the International Monetary Fund to help rescue the euro zone, but hardliners may still scupper an early deal to boost the fund’s war chest, G20 sources said on Friday.
Officials from the Group of 20 leading economies are engaged in what one called a ‘chicken and egg’ game as they work toward a possible deal on boosting the IMF’s firepower at a meeting of the bloc’s finance ministers and central bank governors in Mexico City in one month’s time.
Emerging market powers Brazil and China are among the countries keen to pursue the two-track plan pushed by the current G20 president Mexico to work on additional IMF funding simultaneously with extra steps from Europe, one G20 official told Reuters, rather than insisting on European action upfront.
“There was a much more cooperative sentiment between G20 countries than in recent meetings,” said the official, referring last week’s discussions between G20 deputies in Mexico City.
“Some emerging countries are more open to consider contributions to increase IMF resources in parallel with euro zone efforts, so they are open to make commitments to increase IMF resources in the next few weeks,” the source added.
Mexican central bank governor Agustin Carstens said a consensus was building on boosting IMF resources to help European countries and others that need aid.
But the February 25-26 meeting deadline may prove ambitious, given the United States’ insistence that Europe boost its own crisis shield further before any pledges to the IMF - which estimates it needs $600 billion more to limit the fallout.
“Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall,” U.S. Treasury Secretary Timothy Geithner said at the World Economic Forum in Davos, Switzerland.
“If Europe is able and willing to do that, we believe the IMF is ready to play a constructive role.”
Canada is also taking a tough public stance, although a G20 official from another country said Ottawa was becoming more conciliatory, along with Japan.
“Canada and Japan are more flexible than in the past,” the second official said. “It could be a bit more difficult with the USA, although they too have softened their position, but it’s still early in the game.”
Europe, for its part, supports the two-track approach, but officials are concerned that Germany’s reluctance so far to back increased funding for the euro zone’s own rescue fund may fuel a standoff at the G20.
Germany has insisted that the safety net should not exceed 500 billion euros, but officials close to the G20 talks estimate that a further 230 billion to 250 billion euros is needed.
“It is important that we should not let this be locked between the Americans and the Germans, or the IMF and the Germans, so that nobody would get any pretext or excuse to not do their part,” one senior euro zone official said.
A G20 official from a large emerging market economy said Europe accepted the need to put in more resources but “won’t say it for fear of” Germany.
“They will get to that point because they know not one cent of this IMF money will be made available unless they come up with their side ... the majority view is that we move in parallel we have things ready, but we don’t have to deploy it until the Europeans have gotten their act together.”
European Union leaders will discuss increasing the bloc’s permanent rescue fund, the European Stability Mechanism (ESM), on March 1-2, just days after the February meeting in Mexico, with the timing creating extra difficulty for policymakers.
“If the parallel approach wins inside the G20, a deal on increasing IMF resources could be clinched by the G20 meeting in February,” the initial G20 source said. “Otherwise, the G20 will work on reaching a deal by next April in Washington, after an increase of ESM firepower is signed in March among euro zone countries.”
G20 finance ministers are due to meet in Washington on April 19-20 ahead of a leaders summit in Mexico’s Los Cabos on June 18-19.
Countries keen on the parallel approach are Brazil, Australia, Japan, Indonesia, China, Indonesia and South Korea, the source said.
A senior Brazilian government official confirmed Brazil was keen to push the two aims simultaneously, but said a commitment to a bigger ESM would definitely smooth the way.
“If the Europeans increase (funding to) the ESM then they increase the chances of additional resources to the IMF in support,” he said.
The extra funding may come in the form of bilateral loans between individual countries and the IMF or an increase in countries’ quotas, which could also give emerging economies more say in how the fund is managed.
Additional reporting by Lesley Wroughton in Washington, Alonso Soto in Brasilia, Paul Carrel in Davos and Jan Strupczewski in Brussels; Writing by Krista Hughes; Editing by Andrea Evans, Gary Crosse