Posts tagged "IMF"

Greece faces stark election choice – in or out of the euro

Collapse of coalition talks plunges eurozone into fresh turmoil as EU policymakers work on plans for post-Greek single currency

Europe is facing a month of political and economic upheaval after the failure of nine days of coalition talks in Greece prompted fears on Tuesday that a fresh election in the crisis-torn country would herald the start of the breakup of the single currency.

In what was being seen in the financial markets as an “in or out” referendum on membership of the 17-nation eurozone, party leaders in Athens called a second poll next month once it became clear that they were unable to piece together a national unity government to manage Greece’s biggest crisis in modern times.

Karolos Papoulias, the president of Greece, finally admitted defeat in his attempts to form a government and the date of the new election – either 10 June or 17 June – will be announced on Wednesday.

The collapse of talks sent tremors through financial markets and prompted warnings from Germany’s finance minister, Wolfgang Schäuble, that Greece would have to stick to its hardline austerity programme in order to continue to receive the bailout cash needed to pay government salaries and support troubled banks.

Europe’s policymakers are now actively working on plans to minimise the fallout from a possible Greek departure from the single currency after an election in which the anti-austerity Syriza party is expected to increase its support. Christine Lagarde, managing director of the International Monetary Fund, said she wanted Greece to stay in the euro but said the IMF had to be “technically prepared for anything”.

News of the political impasse in Athens put paid to a modest rally in European markets on Tuesday caused by the surprise news that growth of 0.5% in Germany spared the eurozone collectively from the double-dip recession suffered by Britain.Growth in the monetary union area ground to a halt in the first three months of 2012, although the picture would have looked less rosy had statisticians in Europe followed the UK tradition of adjusting data for the extra working day in a leap year.

David Owen, economist at Jefferies, said that in Germany alone the leap-year effect would added 0.4 percentage points to growth over a full year.

Official figures released on Tuesday showed that Italy’s economy had shrunk by 1.3% over the past year, Spain had contracted by 0.4% and Greece by 6.2%. The length and depth of the slump in Greece – which has seen a 20% drop in output in the past four years – has led to the growing popularity for parties of left and right opposed to the terms of the €130bn bailout package agreed earlier this year.

No group won enough votes, however, to have a working majority in Athens’s 300-seat parliament and parties that backed the terms of the bailout lost support.

The euro fell to its lowest in three and a half years against the pound on the foreign exchanges, while concern that a Greek exit from the single currency would have a domino effect pushed shares in Spain to their lowest in nine years. The interest rates paid by the Italian and Spanish governments for their 10-year borrowing were both above the key 6% level as concerns grew that the eurozone’s third and fourth biggest economies might need bailouts from the IMF and the European Union.

A caretaker government will replace the outgoing left-right coalition, led by the technocrat banker Lucas Papademos, as the nation prepares for another round of election campaigning.

Attributing the breakdown to “petty party interests”, Evangelos Venizelos, who heads the socialist Pasok, said he hoped the next decision of Greek voters would be more mature. “Unfortunately the country is being led again to elections … under very bad conditions,” he said. “The country can find its way again,” the politician insisted, before urging citizens to read the minutes of the two-hour-long talks. “Let’s choose to go towards the better. In God’s name, let it not be worse.”

Like its longtime rival New Democracy, Pasok was pummelled in the 6 May election, a ballot that will be remembered for reconfiguring Greece’s political map.

Athens is not only dependent on rescue funds from its “troika” of creditors – the European Union, the European Central Bank and the International Monetary Fund – that rushed to prop up its ailing economy in May 2010. It is also running out of money fast.

With an €18bn cash injection for the banking system put on hold, a senior official in the outgoing government admitted there were concerns over whether Greece could “make it” until the next election.

“It is a real issue,” he told the Guardian. “The economy is in very bad shape. “The banks have no money. There is no liquidity. It is vital that this cash injection is released by the EFSF [the EU's emergency rescue fund].”

Jonathan Loynes, chief European economist at Capital Economics, said: “There is now a considerable danger Greece simply runs out of money next month – that it can’t pay wages, can’t run public transport, can’t maintain infrastructure and that the country just descends into complete chaos.”

Greece’s eurozone partners are likely to spend the next few weeks ratcheting up the pressure on the country’s voters to back parties prepared to stick to the spending cuts, wage reductions, tax increases and privatisation included in the austerity programme. But the economist Nouriel Roubini said he expected Syriza, which wants to “tear up the barbaric accord” to emerge victorious, leading eventually to default and exit from the euro.

Chris Beauchamp, market analyst at IG Index, said: “The reality now is that there will be elections in mid-June, and at present the anti-bailout, leftwing Syriza party is poised to win a majority.

“If it does, it is pledged to abandon most austerity measures, which would result in the halting of bailout payments and likely result in the exit of Greece from the euro. After two years, this event now seems inevitable, barring some major turnaround in the Greek political climate.”

Greece should follow Argentina’s lead

As Argentina’s experience after 2002 shows, when an economic crisis hits it is often best to go it alone

Unemployment in Greece stands at a record 21.7%. More than one in two young people aged between 18 and 24 is out of work. The economy will be 20% smaller at the end of 2012 than it was five years ago and shows little sign of pulling out of its tailspin.

So when the cry goes up that departure from the eurozone would be a calamity for Greece, the obvious riposte is: how much worse can it get? Greeks fully understand that life outside the single currency would be tough. They know that defaulting on debts and currency devaluation will have costs, including a likely plunge in output, a fresh squeeze on living standards and the risk of much higher inflation. But the alternative – year after year of economic depression as Greece tries to make itself more competitive – does not sound like a bed of roses either.

Ideally, Greece would like to stay in the euro without the current level of austerity, but if these objectives prove incompatible it will eventually have to choose between the two. The argument for exit rests on four pillars: it makes economic sense, the pain would be over more quickly, the costs are exaggerated, and it would be better for Europe.

Greece is currently labouring under a bastardised form of the sort of structural adjustment programme the International Monetary Fund imposes on developing countries. The difference is that the classic IMF remedy is devaluation plus domestic austerity, to ensure gains from a cheaper currency are not frittered away through higher inflation. Greece (and the other bailed-out eurozone countries) are expected to do it all through an internal devaluation – cuts in wages and public spending designed to reduce costs and boost competitiveness. This, though, takes a lot longer and can be self-defeating if the domestic economy contracts more rapidly than exports expand. If this happens, as it has in Greece, the debt problem gets worse.

That’s why critics of the current bailout argue that while Greece would suffer severe transitional costs from a go-it-alone strategy, the choice is between a deep V-shaped recession and a decade or more of permanent depression.

Argentina provides the template for a country that defied the doomsters and made a go of life after devaluation and default. In the 1990s, Argentina’s position was broadly comparable to that of Greece after monetary union. It had pegged the peso to the dollar, a policy that in the first half of the decade led to much lower inflation, but in the second half of the 1990s resulted in much lower growth. By the end of the 1990s, the currency peg came under strain, and like Greece, Argentina tried and failed to muddle its way through with a mixture of austerity, IMF bailouts and debt rescheduling. When the country went its own way in early 2002, there were predictions of economic Armageddon, but from 2003-2007 growth averaged 9% a year.

Comparisons between Greece and Argentina are not precise, because Argentina is a big commodity producer and devalued when the global economy was booming. Greece, by contrast, is part of a recession-mired eurozone, and the turbulence caused by its exit from the single currency might make matters worse.

That, though, is debatable, given that Europe has staggered from crisis to crisis since the full extent of Greece’s debt problem became apparent two and a half years ago. Provided departure was planned and smooth rather than disruptive and contagious (a very big proviso, admittedly), the rest of the eurozone might be able at last to move on.

George Osborne’s growth policy is turning British cities into Detroit UK | Simon Jenkins

Britain’s economy needs smart growth, not dumb policies that have delivered a double-dip recession

Europe’s collective response to the 2008 credit crunch ranks with the treaty of Versailles and German reparations among the great follies of history. While the peoples of Greece, Spain, Italy and France wrestle with counter-productive austerity policies, Britain’s rulers have no more idea of what to do next. On Tuesday David Cameron and Nick Clegg renewed the coalition marriage vow of two years ago, but there were no smiles of rapture in a Downing Street garden, just gritted teeth in an Essex factory. Cocks of the walk had become headless chickens.

Those who warned at the time that the coalition risked double-dip recession by over-suppressing demand have been proved right. The chancellor, George Osborne, raised VAT to 20%, tightened benefits and allowed banks to restrict credit (while saying the opposite). He declared that private sector growth would more than compensate for public sector contraction. He meant well, but he was wrong.

He was also wrong to dismiss the desire of Gus O’Donnell, then cabinet secretary, for a plan B. It was clear 18 months ago that demand was collapsing. A government obsession with rescuing banks took the cabinet’s eye off the ball and had nothing to do with the case. The longer course correction was delayed, the more demand drained from the economy, until the gangrene of double-dip set in. Britain is now having one of the worst recessions in the OECD.

From Cumbria to Corinth it has been left to ordinary voters, to the great Babel of democracy, to bring reality to bear on those who manage economies. Enough austerity, they have cried, try something that works. As Andrés Velasco, the former Chilean finance minister, has written, it is “insane” to envisage countries locked in a common currency slashing their deficits while trying to promote growth: it is a contradiction in terms. This appears at last to have been grasped by an improbable coalition of the White House, IMF, Greek electorate and new French government – and even the ageing British one. They all want “growth”, though few seem to know how to get it.

In Britain the only growth the Treasury has recognised so far has been to turn to the banks. It is like asking the mafia to promote honesty in local government. Ministers pleaded with bankers to lend more to real people, and even printed the money for them to lend. The banks simply carted the loot from the mint and used it to pay off their gambling debts. There is no evidence that one penny of the hundreds of billions of pounds made available “leaked” into the productive economy.

I witnessed government growth policy at work last week on the road north out of Manchester towards Rochdale. The scene is one of utter devastation. Not just individual shops but entire parades have gone out of business and are boarded up. Mile upon mile of factories, garages, supermarkets and warehouses lie empty and for sale. Recession has delivered the coup de grace to a quarter century of manufacturing decline. Manchester is by no means the worst hit of English cities, but its northern suburbs are Detroit UK.

The British economy needs three things: demand, demand, demand. It needs cash in pockets and cash in tills. It does not need richer banks or easier credit lines or looser regulation. It needs that old Keynesian salve, money in circulation. If money can be showered short term on banks, it can be showered short term on consumers, whether through benefit handouts, vouchers, tax holidays or scrappage schemes. Osborne declares quantitative easing to be off his debit sheet. He can do the same for temporary boosts to the money supply.

The chancellor can take credit for winning a reputation for responsibility. Now is the time to draw on that credit. To the claim that boosting demand is inflationary, the answer is that this is the least serious threat to Britain at present. Look at youth unemployment, shop prices or interest rates. Visit the outskirts of any British city. Britain is bursting with unused capacity. Inflation is for another day, not now.

The cabinet’s current response to the cry for growth is to dip into the old goody bag. Osborne is already spending or planning billions of pounds for new railways, tunnels under London, wind turbines and aircraft carriers. There are murmurs of power stations, toll roads and ecotowns. The portfolio of ideas flowing through Whitehall reflects the interests of those whom Whitehall meets – government contractors, land-owners, estate developers and the bankers who finance them. It comes from government departments lobbying for airports, colleges, roads and hospitals.

The reason why the Treasury likes such projects is that they make headlines for ministers and can be controlled from the centre. Also, few involve big spending now. They are slow growth, lobbyists’ growth, dumb growth. They can be farmed out to private finance and are more likely to fuel the next boom than ease the present slump.

It would be better by far to import the US concept of “smart growth”. This does not channel counter-recessionary spending through grand projects. It directs it to the renewal of existing communities and infrastructure, to where there are already roads, transport, schools and hospitals. It restores, infills and stimulates activity where the social and physical framework is in place. It is productive and “sustainable”.

Smart growth revives the private sector through blood transfusion to the high street, rather than through the colossal public contracts favoured by Osborne and the industry secretary, Vince Cable. It makes cities denser, rather than depopulating them. It lets the market rather than the state allocate the extra cash. All this may lack ministerial glamour and earn little for consultants, but if politicians are serious about growth, smart sure beats dumb.

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Unctad is astute and progressive – so why don’t developed countries like it? | Jayati Ghosh

Efforts to limit an agency that delivers sound advice based on solid research suggest a reductive approach to economics

For those who believed that the north-south divide is history, the goings on before and during the 13th UN Conference on Trade and Development (Unctad) must have come as a surprise. For some time before the conference took place in Doha, Qatar, in late April, there were rumblings from representatives of certain countries the organisation classifies as developed about the work done at Unctad. During the conference itself, negotiations about what to put in the document defining Unctad’s work programme extended all night as these malcontents attempted to restrict its areas of work.

Surprisingly, the issue of concern to these countries was not the quality of the work, but rather its scope and reach. Over the past decades this has covered a very wide area, including issues relating to industrialisation, trade and development, financing of development, macroeconomic policies, nature and the impact of financial crises. Unctad has not only made major contributions in each of these areas, but has also been significantly ahead of the curve (and certainly far ahead of the multilateral lending organisations) in terms of anticipating global economic developments, pointing to possible areas of concern – as well as potential – for developing countries, and suggesting feasible alternative strategies that are now increasingly recognised as more sensible.

Consider a few examples. Unctad was among the first to note the potentially damaging implications of financial deregulation and capital account liberalisation, which are now widely recognised to be associated with financial crises in both developing and developed countries. It identified problems such as the impact of financial activity on commodity prices, and the effect on export prices faced by developing countries when too many players attempt to enter the same markets with similar exports. It examined ways in which commodity-exporting developing countries can benefit sustainably from periods of rising prices, rather than suffering from a “resource curse”. More recently, it provided a sane and plausible strategy for growing out of debt rather than killing the patient with more destructive austerity measures, a lesson now being recognised (if reluctantly) even in Europe.

Unctad has been able to do all this because the analysis is not just empirically grounded but nuanced and sensible, avoiding dogmatic positions and knee-jerk responses in favour of a more pragmatic approach. This has often meant combining results and insights that originally come from rather different and often heterodox perspectives, but usually within a coherent logical framework.

With such a track record, why would anyone want to limit or reduce Unctad’s role? Surely the international community should, in its own interest, instead be clamouring to expand the institution’s capacities and provide more resources to enable such good quality research and policy advice to keep coming.

Some explanations for the apparently surprising attitude of developed countries can be found from the informal statements made by certain negotiators. One such representative of an important developed country told his counterpart from a major emerging market economy that they “did not want Unctad to engage in intellectual competition with the IMF”!

Intriguing, isn’t it? Such people are usually all for competition in everything (certainly in labour markets) – except, apparently, ideas. Even more surprising is that the IMF and the World Bank, with their massive resources and humongous research departments, are still scared of a rather small organisation with only a handful of people producing their flagship reports.

The perception of “northern” interests also plays a role. For example, in Doha the big fights about what would go into the final text concerned issues like whether Unctad can work on global financial issues (the US opposed this) or on technology transfer, or even on the protection of traditional knowledge.

In fact, this is not about north versus south, even though it may have seemed like that in Doha. As it happens, the content and results of the research produced by Unctad are very much in the interests not just of developing countries per se, but of ordinary citizens all over the world, the 99% of popular imagination. The rearguard action fought by some negotiators to control and limit Unctad’s work was more about trying to create a single homogenous approach to economic analysis and policy to be accepted globally, even if that approach is increasingly being exposed as misleading and downright wrong.

The governments of the United States and other developed countries are keen to export what they see as democracy to different parts of the world, and to point out (with respect to countries that try to control information and freedom of speech) that it is impossible to control the spread of ideas. Clearly, they need to learn the same messages themselves, especially with respect to ideas and economic analysis.

Fortunately, the active engagement of some of the Brics and other emerging nations proved to be critical in shifting the balance and preserving the basic role of Unctad in the conference. But the messy negotiations showed that taking the progressive agenda forward is going to be constantly challenged even as it becomes ever more relevant and necessary.

Eurozone crisis set to get worse before it gets better

With austerity measures in place, the markets demand to know where the growth is. But no one seems to have the answer

Those who watched Dominique Strauss-Kahn at the spring meeting of the International Monetary Fund a year ago say he played a blinder. Although he was to leave Washington under a cloud shortly afterwards, DSK impressed with his no-nonsense approach to his fellow Europeans.

The IMF’s managing director asked Jean-Claude Trichet, then president of the European Central Bank (ECB), and Christine Lagarde, at the time France’s finance minister, who they thought they were kidding when they insisted there was no problem in the eurozone.

The case put by Trichet and Lagarde was that the single currency as a whole had low levels of debt, had no current account deficit in aggregate and was not contributing to the imbalances in the global economy. Strauss-Kahn told them to face up to the fact that the single currency was being eaten away by the sovereign debt crisis.

A year on and not much has changed. Lagarde is now doing DSK’s old job at the IMF and perhaps has a better understanding of what he was on about. The fund has rattled the tin for contributions to a bigger firewall to cope with future crises, and has got some but not all of its members to stump up. Greece has had a second bailout and the decisive action by the ECB prevented a whole raft of eurozone banks from going belly up at the end of last year.

As in the spring of 2011, the Europeans arrived in Washington for the half-yearly meeting of the IMF professing that all was well, and that the benefits of structural reforms would eventually become apparent in the members of the eurozone that needed to improve their competitiveness. Be patient, they said.

Few were convinced by this flannel. Indeed, there was not an awful lot of sympathy for the Europeans, particularly from the emerging world, which wondered why poor countries should be asked to contribute to a bailout fund for the world’s richest continent, particularly since they were simultaneously being told that the eurozone’s problems were behind it. Many also remember the hard line taken by the Europeans during the sovereign debt crises of the 1990s.

Yet there was concern as well as irritation. The global economy is still moving forward painfully slowly, and there is a risk that contagion spreading from the eurozone could again halt this process.

The upward pressure on Spanish bond yields in recent weeks illustrates deep and lingering concerns about Europe’s problems. It was quite a shock for the markets last week to discover just how dependent Spanish banks were on the ECB for funding, and there is justifiable anxiety about the fragility that would be exposed by a fresh and highly probable fall in Spanish property prices.

What markets are looking for is a convincing story about how countries such as Italy and Spain, let alone Greece and Portugal, dig themselves out of the mess they are in. They have yet to get one.

Traditionally, the sort of structural adjustment programmes imposed by the IMF involve a big currency devaluation to make a country’s exports cheaper. Because this also makes imports dearer, the package also includes domestic austerity to prevent the benefits of increased competitiveness being frittered away through higher inflation.

This remedy – the one that was used in the 1990s for Mexico and during the Asian crisis of 1997-98 – is not available for countries inside the eurozone. But if devaluation is ruled out, so sadly are all the other possible cures: fiscal transfers or a willingness by Germany and the other rich countries of northern Europe to accept higher inflation than those in the south.

Instead, Greece, Portugal and Ireland are being forced to grind out improvements in competitiveness through austerity and structural reforms alone. This will take many years, and in the meantime slashing wages and pensions is killing the domestic economy.

This matters because markets are worried about rising levels of national debt as a proportion of national output. If national output goes down because of permanent recession, the debt-to-GDP ratio worsens and countries end up chasing their tails.

This is the sort of conundrum that would no doubt have tickled Lewis Carroll. Markets take fright at high budget deficits and rising debt levels and demand severe belt-tightening. When the belt-tightening has the desired effects, markets demand to know where the growth is going to come from.

There was not the remotest suggestion in Washington last week that anybody knows how to solve this conundrum. Lagarde talked airily about developing “more and better Europe” but lacked a convincing explanation for how this would come about. The IMF supports common eurobonds that would take the pressure off the weaker nations, and would like money to be channelled directly into eurozone banks from Europe’s bailout fund, rather than the money needing to go to sovereign states first. Both ideas are strongly resisted by the Germans.

The danger, therefore, is that the time bought by the ECB’s emergency action is wasted. The economic data from Italy and Spain over the coming quarters is almost certain to be abysmal, and pressure from the financial markets is likely to intensify despite the fact that both the eurozone and the IMF now have bigger firewalls. Both Lagarde and George Osborne noted last week that the firewalls on their own will not be sufficient to end the crisis.

The comparison with three years ago when the newly created G20 met in London could hardly be starker. At that time, there was collective action to ease both monetary and fiscal policy to prevent a second Great Depression.

That mood of unity quickly dissipated, however. As a tentative recovery began, countries started to go their own way, fears about the debts incurred in the fight against recession surfaced and orthodox thinking returned.

The G20 is now a shadow of what it was designed to be – it is both toothless and divided. The only sign of collective action is in Europe, obsessed as it is with austerity. There is no sign of a credible and coherent plan to boost employment and growth, and thus no compelling narrative for the markets.

In the end, the expectation is that Germany’s commitment to the European project will prove so unbreakable that it will swallow its doubts about fiscal transfers, eurobonds and direct lending to troubled banks. Eventually, Germany may be forced to become the equivalent of an IMF for Europe, providing the money for bailouts in return for structural change.

For this to occur, though, there will need to be a real threat that the single currency will break up. The crisis would have to get worse through a combination of stupidity and complacency. As things stand, that is precisely what is going to happen.

George Osborne says IMF cash won’t end euro crisis

Reforms needed to bring eurozone crisis under control, chancellor warns Europe

George Osborne warned Europe that the boost to the financial firepower of the International Monetary Fund would not be enough to guarantee an end to the debt crisis that has bedevilled the eurozone.

As it became clear that it would be 2013 before Britain handed over its controversial £10bn share of the global fighting fund, the chancellor backed plans for closer integration of the eurozone through common euro bonds.

“Boosting IMF resources will not be enough on its own to secure the recovery,” Osborne told the fund’s key policymaking committee. “We also need a strong and co-ordinated global policy response if we are to exit the crisis.”

The IMF was bracing itself for the judgment of the financial markets on the agreement to increase the size of its firewall by at least $430bn (£267bn). Doubts remained about whether the leading developing countries – Brazil in particular – would deliver on their pledge to increase the resources available to tackle a fresh outbreak of global turbulence.

The so-called Bric countries – Brazil, Russia, India and China – have privately agreed that they will only make a decision on how much to contribute when the G20 group of advanced and emerging economies meets in Mexico in June. Sources said the Brics wanted to see hard evidence that they would have a bigger say in the running of the IMF before making firm commitments.

UK sources said that Britain’s £10bn would only become available once changes to the IMF’s governance had been completed, and they did not expect this to happen until after the US presidential elections in November.

They added that there were sufficient resources available to the IMF in the event that the sovereign debt crisis intensified over the coming months.

Osborne said other rich countries should follow Britain’s lead and implement credible plans.

George Osborne defends £10bn extra funding for IMF

Chancellor says jobs in UK depend on stable world economy, but critics claim British taxpayers are bailing out eurozone

George Osborne is facing anger from Tory backbenchers and Labour after announcing Britain is to commit another £10bn to the IMF.

The chancellor insisted the increased funding was vital to protect jobs and growth in this country, but critics said he was putting the taxpayer on the hook for more bailouts of the struggling eurozone. He was also accused of dodging a potentially embarrassing parliamentary vote on the extra contribution.

Finance ministers and central bank governors struck the deal, which should boost the IMF’s resources by $430bn (£267bn), at a meeting in Washington.

Alongside the UK’s increase, Japan is to contribute an extra $60bn, South Korea $15bn, Switzerland $10bn and Australia $7bn. However, the US and Canada have refused to add any more to the pot.

Osborne said: “The UK sees itself as part of solution to the challenges facing the global economy, not part of the problem. We are helping to solve the global debt problem rather than adding to it.

“Jobs and growth in Britain depend on a stable world economy. That needs a strong IMF.

“And because we have taken strong action to rescue our own economy, we can be one of many countries that can support the IMF, instead of being bailed out by the IMF.”

The IMF managing director, Christine Lagarde, said: “We warmly welcome pledges by our members to increase IMF resources by over $430bn, almost doubling our lending capacity.

“This signals the strong resolve of the international community to secure global financial stability and put the world economic recovery on a sounder footing.

“These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members. They will be drawn only if they are needed, and if drawn, will be refunded with interest.

“I would like to express my thanks to all the countries that have already announced specific contributions … I am also grateful to China, Russia, Brazil, India, Indonesia, Malaysia and Thailand, and other countries, all of whom have indicated that they will be among the contributors.”

Parliament has previously approved around £40bn in support for the IMF, of which about £30bn has already been committed.

If the increase had gone beyond the £10bn “headroom” still available to Osborne it would have required a fresh vote by MPs.

Committing money does not mean it will necessarily be drawn against and, because it would be given in the form of a loan, it would not deplete public spending budgets.

The shadow chancellor, Ed Balls, accused Osborne of signing up to a “sticking plaster” deal and “running scared” of parliamentary scrutiny.

“It is disappointing that the chancellor has not taken the opportunity to press the wealthy eurozone countries to dig into their own pockets and establish a strong firewall of their own, before offering up more funding from Britain,” he said.

“There is a real risk that yet another sticking plaster response will mean the eurozone continues to duck the tough decisions they need to take.

“The IMF has a vital role to play in the global economy and should have the resources to do that job, but it should not be bailing out the eurozone when the euro area countries are not doing their own bit to help themselves.”

Balls added: “George Osborne needs to explain why he has suddenly changed his mind and why he is running so scared of parliamentary scrutiny on this important issue.”

The Conservative MP Peter Bone branded the move “bonkers” and said money used to prop up the euro would be wasted.

“It seems to me it is all about bailing out the eurozone,” he said. “It should not be up to British taxpayers to shore up a doomed project that is for the benefit of our European colleagues.

“People will not understand how we can have all these cuts but put £10bn at risk for other countries. It is bonkers.”

However, Bone said there was now no obvious way of forcing a Commons vote on the issue.

“It does seem very strange that £10bn can be spent without getting a proper parliamentary debate,” he added.

The Tory MP Mark Pritchard, secretary of the influential 1922 Committee, said Osborne appeared to have “got away with the politics” of the issue by avoiding a fresh vote.

But he told BBC Radio 4′s PM programme the UK should not be underwriting a currency that “clearly is not working”.

“Indirectly that is exactly what British taxpayers’ money and IMF funding is going to do,” he added.

However, other senior Conservative figures expressed support for Osborne.

The Treasury select committee chairman Andrew Tyrie said the increase was “essential”.

“The IMF is the only fire brigade available to the global economy,” he said. “It is vital that the IMF has the necessary tools to deal with the current eurozone crisis and the risks to wider global financial stability.

“Any IMF loans to the eurozone must be on rigorous terms, with full conditionality.

“The IMF must not flinch from its long-standing policy of negotiating only with member countries.”

The Tory MP added: “Britain benefits more than most from having a tough global watchdog and no country outside the eurozone has more reason to want the crisis resolved than the UK.”

Osborne: public supports austerity measures

Chancellor says abandoning hardline economic strategy would leave UK vulnerable to the financial markets

George Osborne on Friday warned that abandoning austerity would leave Britain vulnerable to the financial markets as he insisted that the public still backed the government’s hard-line economic strategy.

While admitting that last month’s budget had not been well received, the chancellor said that at this weekend’s spring meeting of the International Monetary Fund the UK was seen as part of the solution rather than part of the problem.

“If I came to Washington and said I was going to take a different path and abandon our policies the story would not be Spain or IMF resources, it would be the UK,” Osborne said.

The chancellor refused to be drawn on whether next week’s figures for growth in the first quarter of 2012 would show that Britain had avoided slipping into a double-dip recession, defined as two successive quarters of declining activity, but said there were signs that the structural reforms to the tax, welfare and pension systems were bearing fruit.

In the five quarters since the autumn of 2010, the UK economy has flatlined, leading to accusations from the opposition that Osborne’s plan to reduce the UK’s record peacetime deficit has been too aggressive.

The chancellor defended his approach and said the painful policies now being implemented in Italy and Spain were the necessary price for the two eurozone countries of restoring market confidence.

“We had to take difficult decisions. We got ahead of the curve and took the right decisions before the markets came looking for us.”

Although growth has consistently been weaker than expected, Osborne said the UK was creeping up the international league tables of competitiveness and said there had recently been some more upbeat economic data, including news of a big jump in high street spending in March.

The IMF said this week that it expected the UK to grow by 0.8% this year and by 2% in 2013, adding that the persistent weakness of the economy was slowing the pace at which the budget deficit came down.

Osborne has argued that a U-turn would be self-defeating, since any boost from higher public spending or lower taxes would be wiped out by the higher interest rates investors would demand for buying government bonds. Despite recent opinion polls showing the Conservatives lagging behind Labour, the chancellor said voters were still behind the coalition’s economic strategy.

“I don’t see any loss of public support for the basic argument that Britain has a debt problem and we have to take difficult decisions to deal with it,” he said. “People proposing an alternative path are not getting any traction.”

The shadow chancellor, Ed Balls, said the chancellor’s approach was failing.

“George Osborne is once again preaching austerity as the only solution, even though it is not working in Britain or the euro area. Even the credit rating agencies are warning it is self-defeating and the IMF itself warned on Tuesday of the risks of cutting too much, too quickly. But Britain and the eurozone continue with failed policies that are choking off growth and making it harder to get deficits down.”

The chancellor has received a poor press for last month’s budget, with controversy over charitable donations, the tax on Cornish pasties, the so-called “granny tax” and the decision to cut the top rate of income tax to 45%.

Osborne said: “I don’t think it helped that so much of the budget leaked beforehand. The headlines weren’t great obviously but the measures to make our economy more competitive – to cut corporation tax and the top rate of income tax, and to cut tax for 24 million working people – were the right ones.”

“You get a different perspective here in Washington. Many countries are facing economic problems but Britain is seen as a country that has got its act together. My responsibility is not to write newspaper headlines. My responsibility is to get the British economy into a more competitive place.”

He added: “The UK is not regarded as part of the problem here. The IMF is comfortable with the decisions we have taken on the fiscal position. We are seen as a country that is helping to solve the crisis rather than adding to it.”

UK swells IMF firewall with $15bn loan

IMF chief Christine Lagarde close to announcing she has enough contributions to firewall as Spain debates further cuts

Britain has pledged a $15bn (£9.3bn) loan to the International Monetary Fund to help the organisation boost its war chest to $400bn to cope with a fresh outbreak of financial turmoil.

Christine Lagarde, the fund’s managing director, was poised on Friday night to announce that she had cobbled together enough contributions to build a bigger firewall after Australia, Singapore, South Korea and some leading developing countries agreed to take part.

Announcing Britain’s contribution, George Osborne said the UK had always been a supporter of the IMF and was willing to be part of a “global effort” to provide an increase in resources.

The chancellor said the loan, which at just under £10bn will not require a vote in parliament, was in line with sums being pledged by countries that were not part of the eurozone.

The deal was struck after a brief rally in European stock markets following the IMF’s commitment to step in with bailout funds and a better than expected business survey in Germany.

The Ifo survey of German business sentiment edged up for the fifth straight month despite the continuing crisis, which has recently centred on the ability of Spain, Italy, Portugal and Greece to survive their second deep recessions in three years. Spanish bond yields jumped above the crucial 6% level for the second time this week as prime minister Mariano Rajoy’s rightwing government debated a further €10bn (about £8bn) package of spending cuts and increased charges in education and health.

“It’s necessary, imperative because at this moment there is no money to pay for public services,” Rajoy said.

The situation worsened in Greece after two of its top banks reported historic losses for 2011 after huge writedowns on loans to the Athens government.

A sovereign debt swap, orchestrated by Brussels and a group of international banks, blew holes in their balance sheets. Alpha Bank and Eurobank together posted losses of €9.3bn, about 10 times more than they are currently worth in the market. The losses left Alpha’s core capital reserves at 3%.

At least €50bn of Greece’s second bailout is earmarked to rescue its banking sector, with some of the money coming from the IMF. It is not known if widespread bank losses will force a fresh round of fundraising.

Although Lagarde has said the $400bn in new loans is for use in any of the fund’s 188 members, the increase in firepower is seen by the US, Canada and emerging market economies as a fighting fund for the eurozone.

Labour and some Conservative MPs oppose the loan, but Osborne said it would be a sign of a “dysfunctional world” if member countries did not provide the fund with the resources it needed. “This is a loan not a gift,” he said. No country had ever lost money by lending to the IMF.

Andrew Tyrie MP, chairman of the Treasury select committee, said the IMF was the “only fire brigade available to the global economy”. Britain’s contribution was vital.

Labour’s Treasury spokesman, Ed Balls, said the chancellor needed to impose tougher conditions before providing more funds. “The IMF has a vital role to play in the global economy and should have the resources to do that job, but it should not be bailing out the eurozone when the euro area countries are not doing their own bit to help themselves,” he said.

The chancellor said the four conditions he had set for a UK contribution had been met – that any loans disbursed by the IMF would be subject to the normal tough conditions, that the money would be spent helping countries rather than currencies, that other members chipped in and that the euro zone reinforced its own firewall.

Osborne said the loan would come from the UK’s reserves, was not money that would otherwise have been available for public spending and would not add to the national debt.

Lagarde’s appeal for resources exposed divisions within the IMF’s membership. South Korea said it would match Britain’s contribution, Australia pledged $7bn and Singapore $4bn.

The US and Canada have refused to take part, while Brazil linked its support to changes in the IMF’s governance to provide a greater say for the fast-growing emerging economies.

Canada said that European members of the IMF’s board should decide how to use the $200bn in the war chest provided by the eurozone, but that non-European members should set the conditions if the amount pledged by non-euro countries was also needed.

Eurozone crisis live: Britain commits extra £10bn to IMF

• Spanish borrowing costs creep into danger zone
• UK retail sales post biggest rise for a year
• Focus on Washington for IMF/G20 talks
• German business confidence index better than expected

5.48pm: More in from Athens where Helena Smith says the Greek government now looks likely to hold a cabinet meeting next week to discuss ways of completing the procedure of recapitalising the country’s banks.

With revitalisation of the banking sector now seen as key to restoring growth, prime minister Lucas Papademos is intent on working out the nuts and bolts of the procedure before general elections take place on 6 May.

Unlike other governments, Papademos’ interim emergency coalition will wield executive power right up until the poll is held. As such, officials said the technocrat leader would likely call a cabinet meeting next week to discuss ways of expediting the process of injecting fresh capital into the cash-strapped banking sector.

As part of the country’s latest bailout, the government took delivery of some €25bn in EFSF funds on Thursday.

The extent of the writeoffs made by Greece’s banks in the wake of last month’s sovereign debt restructuring has now been made clear, with the big four banks recording total losses of around €28bn between them.

As we reported, Alpha lost €3.81bn, while Eurobank lost €5.5bn, National Bank of Greece €12.3bn and Pireaus €6.3bn.

And with that it’s time to close up shop for the week. We’ll be back on Monday to consider any market fallout from the French election, in a week which also sees the UK GDP figures and the latest US Federal Reserve meeting.

As usual, thanks for all the comments – and apologies for the earlier problems.

5.35pm: More grim news for Spain, writes Giles Tremlett in Madrid:

Think-tank FUNCAS sees the economy shrinking 1.7% this year and a further 1.5% in 2013. Worse still, it predicts unemployment will rise to 26.3% in 2013.

That, El País points out, more or less coincides with predictions from Analistas Financieros Internacionales, which sees 26.5% unemployment and a 1.2% recession in 2013 – assuming the government stays on target to cut the deficit from 8.5% to 3% in just two years. That is what Mariano Rajoy’s government pledges to deliver in order to meet a eurozone-set target.

All this contrasts with IMF figures which assume Rajoy will miss the deficit target, but avoid damaging growth and employment. The IMF sees Spain’s deficit still at 5.7% next year (it obviously thinks Rajoy can’t or won’t obey his eurozone partners) – but growth at 0.1% and many hundreds of thousands more people still in work, with unemployment falling to 23.9%.

5.24pm: Here’s Larry Elliott’s report on George Osborne’s commitment to more funds for the IMF:

Osborne said the UK had always been a supporter of the IMF and was willing to be part of a “global effort” to provide an increase in resources.

Labour and some Conservative MPs oppose the loan, but Osborne said it would be a sign of a “dysfunctional world” if member countries had not provided the Fund with the resources it needed.

“This is a loan not a gift”, he said, adding that no country had ever lost money by lending to the IMF. The chancellor said the four conditions he had set for a UK contribution had been met – that any loans disbursed by the Fund would be subject to the normal tough conditions, that the money would be spent helping countries rather than currencies, that other members chipped in, and that the euro zone re-inforced its own firewall.

Osborne said the loan would come from the UK’s reserves, was not money that would otherwise have been available for public spending, and would not add to the national debt.

4.47pm: (BTW – As you can probably tell, the problem with the comments now appears to have been resolved.)

4.45pm: A quick round up of the markets, and the week is ending on a positive note.

The FTSE 100 has finished 27.60 points higher at 5772.15, a rise of more than 2% over the week. This marks its best weekly performance since the first week in February.

Elsewhere Germany’s Dax has finished up 1.12%, France’s Cac is 0.25% better, Italy’s FTSE MIB has climbed 0.8% and Spain’s Ibex is 1.92% better. The Dow Jones Industrial Average is currently more than 100 points – or 0.8% – higher.

So despite worries about Spain and Italy’s finances, investors are clearly taking heart from positive noises from the IMF, including the commitments coming in to boost the fund’s resources.

4.33pm: More IMF commitments: Australia will give $7bn, Singapore $4bn, South Korea $15bn.

Of course the elephant in the room is the lack of any new funds from the US. However, George Osborne appeared to agree with the idea that the US had done enough through the Federal Reserves’s dollar swaps.

So far it appears the running total for the boost to the IMF’s resources is around $371bn.

4.09pm: Snaps coming from a briefing with UK chancellor George Osborne at the IMF meeting in Washington:

Osborne has confirmed Britain will commit $15bn – around £10bn – to the IMF as part of the proposed $400bn firewall. The size means it can go ahead without a parliamentary vote. The money will come from the reserves and is “a loan with interest, not a gift.”

Could there be trouble on this? Here’s Sky’s Ed Conway:

NB last time UK increased IMF resources, 32 Tory MPs rebelled. This time they won’t be allowed to vote on it. I smell controversy brewing

— Ed Conway (@EdConwaySky) April 20, 2012

4.02pm: Just to mention we’re having a few technical problems, so no one is able to comment at the moment. As soon as I get any updates, I’ll let you know.

3.51pm: Results from the Greek banks are starting to come through, giving a flavour of what to expect.

Alpha Bank, the country’s third largest lender, has reported a 2011 net loss of €3.81bn after its bond swap writedown and increased bad loan provisions. The previous year the bank made €85.6m.

Its core tier 1 capital ratio has fallen to 3%. To put that in context, Greece’s central bank has said the ratio should be 9% by this September. So, some way to go.

3.38pm: Speaking of Pimco, here’s the company’s Bill Gross with an interesting point:

Gross:Amazing: Eurolnd inflatn= 2.5% amid signficnt recesion & UK inflatin= 3.5% w simlr conditins. Wither inflatn if world ever normalizes?

— PIMCO (@PIMCO) April 20, 2012

3.26pm: With elections in France and Greece to come, here are a couple of pieces looking at the possible impact on the markets.

M&G’s bond gurus worry about a leadership vacuum at the heart of the eurozone, especially if Germany decides to call early elections. More here.

Meanwhile Mohamed El-Erian of Pimco, the world’s largest bond fund manager, has writte here about what various electoral outcomes could mean for investors.

A little light weekend reading ahead of the French vote.

3.17pm: As we await more news from the IMF, a quick look around the markets seems to indicate a relatively positive mood.

There are no major US economic figures to influence sentiment one way or the other, but the Dow Jones Industrial Average is up nearly 90 points anyway in early trading. The FTSE 100 has edged 21 points higher, still on course for its best weekly rise since February. Germany’s Dax is up nearly 1% while France’s Cac is 0.28% better ahead of the weekend’s election (of which more soon). Italy’s FTSE MIB is 0.7% better and Spain’s Ibex is up 1.5% – interesting since the two countries are in the firing line over their financial positions.

2.38pm: Reuters quoting both Klaus Regling and EU commissioner Ollie Rehn saying the extra funding for the IMF is a done deal. Hopefully there’ll be a statement to that effect at some point….

And with that I’m handing over to my colleague Nick Fletcher.

2.10pm: More from Helena Smith, who has been looking at the story here that Greek banks will announce their losses for last year later today.

Helena says that the Greek prime minister Lucas Papademos has today reiterated that supporting businesses after five years of recession is a top priority for Greece.

“The government is trying to do everything possible to make sure that financial resources reach the real economy,” Papademos, a former Goldman Sachs banker and vice president of the European Central Bank, told a conference in Athens.

It was essential, he said, that the country’s banks “play an active role” in revitalising the cash-starved Greek economy.

Papademos, an unelected technocrat in power since November last, insisted that the recapitalisation of the country’s banks (though now expected to be delayed) was a “prerequisite” to re-energising the real economy through businesses that are among the greatest victims of the debt crisis. The European Financial Stability Fund, he said, had sent 25 billion euros towards the recapitalization process although he forecast that about double that amount would eventually be needed.

1.57pm: Back in Washington now and Klaus Regling, who is the head of the European Financial Stability Facility, or euro rescue fund for short, has been speaking.

Amid all the talk about more funds for the IMF to contribute to any future bailouts, Regling says “the debt crisis in Europe will not be solved only through more firepower”.

Warming to his theme, he says that Spain has a lot of reforms to carry out but has made a start

1.51pm: Meanwhile, news in from Athens where our correspondent Helena Smith says two new polls (the last to be released before national elections on May 6th) show that Greece’s two main parties will win just about enough votes to form a coalition.

In what will be a relief to IMF chief Christine Lagarde and leaders of the EU creditor countries propping up the Greek economy, latest polls are indicating that the debt-stricken country’s two main parties, Pasok and New Democracy, have begun to claw back enough support to renew their coalition despite widespread anger with austerity cuts. Helena writes:

One survey conducted by Kapa Research for the mass-selling daily Ta Nea suggested that 59 % of Greeks are in favour of the centre-right New Democracy (still tipped to come out on top with 25.5% of support) joining up with centre-left Pasok which it predicted would capture 19.1 % of the vote.

The poll – the last to be published before a ban on surveys comes into effect ahead of the May 6 election – also revealed that 77.1% of Greeks believed it was vital that Athens remain in the euro zone – again welcome news for EU members like Germany who would rather the €30m snap election wasn’t taking place at all.

Both main parties have backed the harsh austerity measures mandated by the EU and IMF in exchange for the €240 bn in aid Greece has received since May 2010 to stave off bankruptcy.

Another poll conducted by Marc for the leading Athens daily Ethnos forecast the two main parties winning 155 seats in the 300-seat parliament – far below the landslide victory Pasok won at the last general elections in October 2009 but enough for the two to renew their uneasy coalition even if worries still abound that governing Greece, whatever the result, is going to be harder after the election. Athens will be called to pass yet more stringent cuts in June when the new government must make another €11.5 in savings for 2013-14.

In keeping with all other surveys, the two polls showed an array of anti-austerity parties winning enough votes to be represented in parliament. Among the eight passing the 3 percent threshold to enter the 300-seat House is the neo-fascist Golden Dawn party whose fortunes have risen on the back of anti-immigrant sentiment and opposition to the stringent terms attached to the bailouts in a country that increasingly analsyts believe could be poised for a 1930′s style depression after five straight years of recession.

1.37pm: As Spanish bond yields hover around 6%, the independent economist Shaun Richards blogs here that the Spanish should be singing Help! or With A Little Help From My Friends.

But as a sign of respect for the great Band drummer and vocalist Levon Helm, who has died of cancer, perhaps they should be singing The Night They Drove Old Bond Yields Down. or even Up On Shit Creek. Either way what’s not to like about this.

1.09pm: Despite the general uncertainty and gloom around the markets — see here — the FTSE is on course for its best week since February. Banks have regained some ground, which always helps, and the FTSE100 index is up 27 points at 5772 or 0.48%. It’s a similar picture elsewhere with the German Dax up 0.86%, French Cac 0.65% and, strongest of all, the Ibex in Madrid is up 1.8% after a week being battered over fears for Spanish banks.

1.05pm: As per the last post, Reuters quoting G20 official saying that ‘G20 to commit to increase IMF resources by more than $400bn’.

12.42pm: Interesting story on the FT site about results expected from Greek banks this afternoon after the markets there close.

Not surprisingly it says the results are expected to be dismal after the banks were involved in the biggest sovereign restructuring in history. The FT reports that analysts expect the banks to suffer losses of €33bn on their Greek government bond holdings of €42bn. Hopefully more on this later.

12.21pm: While we’re waiting for Christine Lagarde to speak in Washington it might be worth looking more at the issues around her plea for more money from IMF members.

The key is to get more from so-called emerging nations such as Brazil and Russia. According to Reuters, the latter is offering $10bn and said that countries were ready to commit enough funds to fulfill Lagarde’s request for at least $400bn to draw a line under the euro-zone crisis.

“Trust me that the G20 will announce the final amount. This will be an amount that will satisfy the management of the International Monetary Fund,” said Sergei Storchak, Russia’s deputy finance minister.

But Brazil, Reuters says, wants more concrete promises of more say for emerging countries written into the G20 communique in exchange for their support.

It reports:

They are frustrated over delays – particularly by the United States – in implementing an agreement to lessen Europe’s sway at the IMF and lift China into the No. 3 voting slot. “What we want and demand in every meeting is that this commitment be reaffirmed,” Brazilian Finance Minister Guido Mantega said.

10.53am: And if you feel the need to have your say on the question of Spain and it possibly needing a bailout, here’s a link to our online poll.

10.51am: Sorry about the pause in coverage but while I’ve been away Spanish bond yields have actually fallen back below 6% to 5.959%. Anyway, they’re still up for the day and up quite considerably this month where they started at 5.4%.

9.44am: Back to Germany briefly and an alternative view to what’s happening there from Carsten Brzeski of ING. He points out that there is a big difference between soft and hard data — ie between stuff like today’s IFO index and harder stuff like GDP etc. He thinks business people in Germany are being over optimistic.

Here he is:

Since the beginning of the year, the discrepancy between soft and hard data has increased significantly. While confidence indicators continued to increase, pointing to a very optimistic picture of the economy, the real economy has troubles picking up pace again. It looks as if the February freeze has extended the growth stopover by another quarter. Instead of experiencing a quick rebound, the economy is still flirting with a technical recession. Any catching up of the construction sector in March and the overall rebound in industrial production would have to be impressively strong, to return the economy into recession-free territory already in the first quarter.

Looking forward, he sees more trouble, especially if China has a harder landing and jeopardises German export growth (see earlier post here)

With austerity-driven slowdowns coming to most other core Eurozone countries, an obvious cooling of the Chinese economy and a still not very dynamic US recovery, export growth should clearly come down. However, hopes for more domestic consumption on the back of higher wage could easily be disappointed. As German exporters have already been squeezing their margins to secure market shares, substantial wage increases as recently agreed for the public sector are unlikely to materialise in the tradable sector.

In our view, today’s Ifo index paints a too positive growth picture of the growth prospects for the German economy. Of course, with a lack of domestic imbalances and no pressing cleanup efforts, the German economy remains the six-cylinder growth engine of the Eurozone. However, it is not running at full throttle anymore.

9.37am: The retail sales figures are a real surprise and gave sterling an instant boost. But a quick reading of the ONS release shows that it was petrol sales that were to blame with the panic buying of last month sending sales soaring. So step forward Francis Maude, one-man booster of UK plc.

The warm weather also helped, with people bringing forward clothing and gardening purchases, the ONS says.

9.31am: 9.30am: BREAKING NEWS: UK retail sales posted their biggest rise in more than a year, increasing 1.8% in March. More shortly.

9.07am: The figures from Germany confirm the view that Germany is doing OK danke. A long piece in the FT today examines the country’s economic miracle through the prism of the upcoming Hanover trade fair where the mood is very upbeat.

It quotes the fair’s chief executive as saying that nobody could have expected Germany to emerge from the global financial crisis so strongly. But it adds that Germany’s success has become more linked to exports to China. It exported €65bn worth of goods there last year, four times more than in 2007.

9.02am: The IFO German business climate index is better than expected, climbing very slightly to 109.9 from 109.8. Had been forecast to come in at 109.5.

8.52am: The rise in Spanish yields is no surprise in the City where there has been a fair amount of scepticism about the, shall we say, transparency of the bond auctions there this week.

This post yesterday from City veteran David Buik is typical:

This morning I sent out a rather cryptic tweet on the subject of the day’s Spanish bond auction – words to the effect that Tuesday’s sale of 1 year and 18 months bills at an average yield of 2.6% by predominantly Spanish banks, which were filling their boots with ECB money at 1% was a doddle and not really in need of the services of a rocket scientist to work out the locked in benefit of that transaction.

I then implied that the 2year and 10-year auction would sort the men out from the bys! Not a bit of it! The punters appeared to gobble up the auctions with indecent enthusiasm. Both auctions were oversubscribed 2 and 3 times respectively.

Eventually the market smelt a rat – possible skulduggery? The market eventually decided on a sell off, as it was convinced that today’s auction was rigged with massive support from the ECB and other Central banks to make it look like an unqualified success! At the end of the day the kissing has to stop. If austerity measures, however painful, are not implemented, the level of unsustainable debt will not only turn out to be toxic, but also be a real threat to democracy. Spain is too big to fail; so the EU must be honest in telling the markets that it will take care of it. Spain is different from Greece. There is a smidgen of hope in the long term!

8.39am: The rise in 10-year Spanish bond yields (borrowing costs currently at 6.009%) links directly to the goings-on in Washington, where the IMF boss Christine Lagarde is trying to convince memebrs to stump up more cash to help pay for future bailouts.

If Spain gets into trouble – and 6%+ borrowing costs are the first sign that a country’s fiscal position is becoming unsustainable – the EU/ECB/IMF troika will need a huge fund to rescue what is Europe’s fifth largest economy.

But as Michael Hewson of CMC Markets UK points out this morning, it might not be enough.

Yesterday’s claim by IMF chief Christine Lagarde that an agreement on an extra $400bn of funding should be reached this weekend is rapidly becoming beside the point. Even if a promise of more funds is agreed from some members it is extremely unlikely that any money will be forthcoming from the US anytime this side of the election in November, if at all, or from Canada for that matter. In any case the amount would be totally inadequate if Spain’s fiscal situation, with respect to its banks were to deteriorate to such an extent to require some form of bailout in the coming weeks and months, let alone by the end of the year.

A spat last night between Canadian finance minister Flaherty and German ECB member Asmussen highlights the differences simmering beneath the surface among a number of countries who believe that Europe has not done anywhere near enough to deal with its own problems, and resent being asked to put their hands in their pockets when Germany seems unwilling to go the extra mile for a currency that has benefitted them enormously.

The reluctance of Germany to accept the urgency of the situation unfolding in Spain and the rest of southern Europe can probably be traced to the fact that the German economy is not experiencing the hardships or harsh realities of the austerity measures being imposed on the rest of the squeezed European economies.

8.16am: That market jitteriness that we expected has been reflected already with Spanish bond yields on benchmark 10-year money going back above 6% this morning. They crept above the danger mark on Monday for the first time this year but investors clearly still concerned about the country’s prospects.

8.09am: The market has duly opened a little down in London – with the FTSE 100 currently 5 points in the red.

Further down the market things are not being helped by a 34% fall in the shares of fashion company Supergroup after another profit warning.

8.00am: Good morning and welcome to the euro crisis blog.

Today’s agenda looks like being dominated by the IMF/G20 finance ministers meeting in Washington and Christine Lagarde’s attempts to squeeze an extra $400bn out of members in order to bolster funds for future euro calamities. Members include the UK of course with chancellor George Osborne in the US capital for the meeting, but also emerging nations such as Brazil who will stump up the cash but only in exchange for more say in how the organisation is run.

There’s a meeting between officials from the various countries and the IMF later today after which we expect an announcement. Our own Larry Elliott is there.

Otherwise today more nerviness expected in the markets ahead of the first round of the French elections on Sunday and continued uncertainty around Spain and Italy’s economic prospects.

And timetable wise we have:

9am – the widely watched German IFO business climate index

9.30 – UK retail sales figures for March, which are expected to be up slightly on Ferbruary at 0.4%

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