The United States on Wednesday threw its support behind a bid to boost the International Monetary Fund's financial resources, signaling greater satisfaction among Group of 20 nations with Europe's efforts to resolve its debt crisis.
The U.S. government will not chip in more money of its own, but warm words from Treasury Secretary Timothy Geithner for commitments by others may clear a path for G20 nations meeting this week in Washington to agree on a way to bolster the IMF's war chest.
The idea is to bulk up so the Fund so it can aid non-European countries that get caught up in the maelstrom emanating from the euro zone.
The effort to expand the IMF's coffers is expected to dominate a meeting of G20 financial officials over dinner on Thursday and during the day on Friday. It will also be front and center at the IMF's semi-annual session on Saturday.
Speaking at the Brookings Institution, Geithner said commitments that have already flowed in should make it apparent to financial markets that the Fund can bulk up quickly when necessary, a prospect that could ease crisis-related jitters.
To underline the point, Japan's ambassador to the United States, who was in the audience as Geithner took questions, stood to remind him that Tokyo was putting up $60 billion more for the IMF. Sweden and Denmark also have announced an additional $17 billion in commitments.
Geithner said it was a positive that the IMF could raise money quickly to cushion if necessary the effects of European trauma on the economies of other nations.
We're actually very supportive of that process and we'll be very supportive of it this week, he said. Even though he repeated that the United States will not chip in with more money for the IMF, Geithner avoided past rhetoric about Europe needing to do more first.
HOPING FOR A DEAL
IMF Managing Director Christine Lagarde said in an interview published on Tuesday that she hoped for agreement this week on raising the lending agency's funds by at least $400 billion. In January, the IMF had said $600 billion was needed, but it cut that estimate as financial fears have eased.
While Europe has won some praise for actions it has taken to build up its own firewall, the IMF warned this week that the debt crisis is still the single greatest threat to a moderate global recovery from the 2007-2009 financial crisis.
Solving the issues in Europe is not about a firewall, it's about decisions that will be taken in Europe over a sustained period of time; and it's European actions that will be decisive here as opposed to outside money, Bank of Canada Governor Mark Carney told a news conference.
Carney, who also heads the global Financial Stability Board, said the G20 had yet to reach a consensus on how to proceed.
Like the United States, Canada has ruled out putting more money into the IMF. Really, the Europeans need to step up to the plate much more than they have, Canadian Finance Minister Jim Flaherty told reporters in Toronto.
But in Mexico, Finance Minister Jose Antonio Meade sounded an optimistic note about a deal for more IMF money. He said commitments made by Japan, Sweden and Denmark were a sign of good progress -- a potentially significant comment because Mexico, as this year's G20 chair, has a chance to shape not only the agenda but also the outcome.
It creates a good environment for the meeting, Meade said of money pledges.
Germany's finance minister, Wolfgang Schaeuble, predicted in an interview with Reuters on Tuesday that a deal would be reached this week.
In report on global financial stability, the IMF offered advice for Europe: set a course for fiscal union to match the existing monetary union so that unified policy can be passed that works equally for members and makes it harder for financial markets to single out the weakest for attack.
European authorities need to provide investors with a clear vision of where monetary union is going, because the answer to this is more and better Europe, not less Europe, IMF financial counselor Jose Vinals said as he issued the report.
Among its recommendations, including central supervision of European banks, the IMF suggested that the European Union should also consider injecting capital into banks using public funds - a tactic the United States employed in 2008 when the banking system was at risk of collapse.
(Additional reporting by Stella Dawson and Rachelle Younglai in Washington, Krista Hughes in Puerto Vallarta and Louise Egan in Ottawa; Editing by Dan Grebler)