Rev 6:5-6 NCV When the Lamb opened the third seal, I heard the third living creature say, "Come!" I looked, and there before me was a black horse, and its rider held a pair of scales in his hand. Then I heard something that sounded like a voice coming from the middle of the four living creatures. The voice said, "A quart of wheat for a day's pay, and three quarts of barley for a day's pay, and do not damage the olive oil and wine!"
“Against all odds, the frameworks of the world’s economic, political, and social systems are being shaken and are beginning to crumble.”
-Jim Bakker in “Prosperity and the Coming Apocalypse”
The head of the International Monetary Fund said on Monday the eurozone needed a bigger firewall to prevent Italy and Spain sliding towards default, underlining Europe’s responsibility in solving its own sovereign debt crisis.
In a speech in Berlin, Christine Lagarde, IMF managing director, said that without a larger bail-out fund, fundamentally solvent countries like Italy and Spain could be forced into a financing crisis.
“This would have disastrous implications for systemic stability,” she said.
Ms Lagarde said that the eurozone authorities needed “a clear and credible timetable” to fold the existing European Financial Stability Facility (EFSF) into the new European Stability Mechanism (ESM), increase its size and ensure support from the European Central Bank.
Her speech directly addresses one of the most central issues in the eurozone sovereign debt crisis – the size and scope of official bail-out funds designed to stop instability spreading.
The ESM, whose launch leaders are trying to bring forward to July, is planned at around €500bn. That is unlikely to be large enough to finance big bail-out programmes for Italy and Spain, should they be required.
A draft of the EU treaty setting up the ESM and seen by the FT sets the ceiling for the bail-out system at €500bn, but gives members of the fund’s board the right to raise the amount.
However, in a television interview on Sunday evening, Wolfgang Schäuble, German finance minister, said that increasing the size of the fund was not under discussion at the moment.
Although the IMF has not explicitly stated a target size for the eurozone bail-out fund, a paper presented last week to the fund’s executive board implied that the eurozone would need to find an extra $500bn on top of existing resources.
The paper said there was likely to be an additional global demand for bail-out funds of around $1tn over the next two years, of which it said the IMF itself should aim to raise enough cash to meet half.
The IMF, which has provided about a third of the money for bail-outs in Ireland, Greece and Portugal, has been under increasing pressure from its emerging market shareholders and the US not to extend more lending to western Europe without a credible commitment from the eurozone authorities to lead an effective solution to the crisis.
In an apparent reference to Germany, Ms Lagarde on Monday suggested that fiscal consolidation should be delayed in eurozone countries which had the ability to do so.
“Yes, several countries have no choice but to tighten public finances, sharply and quickly,” she said. “But this is not true everywhere. There is a large core where fiscal adjustment can be more gradual.”
Ms Lagarde said: “Those with fiscal space should support the common effort by reconsidering the pace of adjustment planned for this year.”
The IMF is due to release the latest versions of its global economic forecasts on Tuesday.
Ms Lagarde said they would be lower than previously estimated for most of the world. “Even these lower forecasts assume a constructive policy path that is by no means assured,” she said.