With less than two months before the G20 summit is to commence, the IMF is warning that stock markets can only be swayed by action from the European Central Bank. It is IMF’s contention that the ECB needs to light a fire under key financial markets in order to prevent a further intensification of the market turmoil that very well could prompt a double dip global recession.
Before deliberating on how best to turn €440 billion into a much needed €2 trillion necessary to counteract the debt crisis, the Germans have yet to vote on expanding the EFSF (European Financial Stability Facility). The IMF insists that the only alternative is to lean on the ECB for the leverage needed. One European senior official states that no decision on how this is to be accomplished has been made yet.
IMF’s head of the European division feels that there needs to be a combined effort between the ECB and the EFSF in order to find a viable solution to this problem. Antonio Borges further believes that it would be a grave error in judgement to believe that the EFSF will be a miracle cure to the debt crisis in the eurozone and beyond. As well, it is his contention that only the ECB will be able to ‘scare’ the financial markets into a positive direction.
While it is not being publicised as such, most IMF officials and members of the 187 governments represented therein believe that Greece will inevitably default. Because of this, the focus has now turned to Spain and Italy as Greece is heavily indebted to them. If Greece defaults, this will have a very serious effect on the economies of those two countries, perhaps dragging them into debt crisis as well.
Angela Merkel, Germany’s chancellor states that her country would not rule out allowing a default but would like to have a permanent rescue plan/fund in place to stabilise the eurozone first. Amidst all this, the markets have been steadily falling, which shows confidence down. This gives further credence to IMF’s warning that only the ECB can restore confidence.