Chief of International Monetary Fund, Christine Lagarde, said that the IMF sees a gloomy future for Europe and does not think that the available funding of the IMF will be enough to support governments in the EU without reaching of beyond the EU to raise funds.
This past week, there has been evidence of disagreement and legal problems with funds being funneled through the IMF to help specific governments or strictly for the use of EU countries. The IMF is one of the only International Funding Agencies that can offer help directly to governments. Unlike the ECB which can only offer assistance to financial institutions. The IMF was set up to assist all governments and countries around the globe so all money goes into a general fund, where the IMF determines how it can best be used. The USA has veto power over the use of these funds. It is impossible under the present system for EU countries to contribute funds that will be earmarked only for EU member states.
Once the funds are in the IMF general account, the IMF can then use these funds to help any nation needing funds.
Nations around the globe contribute to this fund but these funds are to be distributed in the forms of loans, and many nations that are willing to contribute more to help the ailing global economy, want to know what assurances the failing EU countries are providing the IMF to make sure of repayment.
There are many problems surfacing within the eurozone that need to be addressed before there is a plan.
Each day, there seems to be more cracks emerging in the financial fiscal pact that came out of last week’s EU Summit. Many economists believe that the EU leadership is crumbling under pressure and unable to deal with the short term crisis.
New pressures keep piling up, while cracks begin to surface. Moody’s has downgraded banks, Fitch has followed suit and Standard and Poor’s continues to downgrade sovereign debt. While the deadline continues to draw closer each day, what is going to happen in just a few short weeks when the banks of Europe need to raise additional capital and the nations of the eurozone need to refinance maturing debt. To compound the pressures on President Sarkozy, France’s official statistics agency, INSEE, said that it expects the Europe’s second-largest economy to fall into recession in the final three months of this year and the first quarter of 2012.
In her address in Washington Lagarde stated “It is going to require efforts, it is going to require adjustment, and clearly it is going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the eurozone.”
Lagarde continue to warn the nations of the world that no economy would be immune to the economic havoc coming from the eurozone, urging nations around the globe to offer assistance.