Government officials say UK will demand more reform in eurozone before increasing contribution to IMF
The government has said it will demand improvements in European Union efforts to sort out its currency before it can agree to an imminent request from the International Monetary Fund for extra UK funds that is likely to reach as high as £19bn.
The Commons has already given the Treasury leeway to draw down an extra £10bn to give to the IMF, but anything further would require a fresh vote in the Commons – and be likely to prompt a backbench Tory rebellion.
Ed Balls, the shadow chancellor, has said Labour will vote against extra cash if there is no serious sign that the European Union, specifically through further interventions by the European Central Bank, is taking action to strengthen the euro. Balls would also like to see a shift in broader European economic policy so there is less emphasis on austerity and more on securing growth.
The IMF confirmed on Wednesday that it was looking to boost funding from $400bn (£260bn) to $1tn, a shift that would require as much as £19bn on a proportional basis. The previous increase in IMF funding last summer scraped through the Commons by 274 votes to 246 despite a large rebellion by 32 backbench Tory MPs.
An IMF spokesman said “Based on staff’s estimate of global potential financing needs of about $1tn in the coming years, the fund would aim to raise up to $500bn in additional lending resources. This total includes the recent European commitment of about $200bn in increased fund resources. At this preliminary stage, we are exploring options on funding and will have no further comment until the necessary consultations with the fund’s membership have been completed.”
Government officials said on Wednesday that they expected the issue to be discussed at a meeting of the G20 finance ministers starting on 25 February.
Speaking during a trip to China, Osborne earlier this week reaffirmed that the UK government would be prepared to make extra funding available to the IMF alongside other G20 nations “if there is a strong case” but reiterated the cash must go to “countries, not currencies”.
He also suggested extra UK contributions would be conditional on European reform.David Cameron is likely to discuss the issue during talks with the new Italian prime minister, Mario Monti, at lunchtime.
Osborne said: “If I felt it was a decent request by the IMF, then, of course, I would be willing to go to parliament and make that request.
“But let me be very clear, I would not do that with Britain acting alone … and we are very clear this is not a substitute for the eurozone providing money for dealing with its own currency.”
He said the eurozone was not doing enough to “stand behind” its currency, and there had been little evidence of the “pooled resources” needed to instil confidence in the markets. The value of the euro bailout fund has been reduced partly due to the decision of Standard & Poor’s, the credit ratings agency, to downgrade the fund.
Osborne also warned that quicker action on the Greek debt crisis was needed to tackle instability in the single currency.
“I think what the euro needs to do is show convincingly that it can stand behind its currency,” he told the BBC Radio 4 Today programme. “We haven’t actually seen much evidence of the pooled resources needed by the euro to actually provide confidence to the market that they will stand by their own currency.
“There are lots of good signs that they are getting there and there are various summits planned for the next few months to ensure those resources are there.
“But I think that is what they need to do as well as resolve the Greek situation, I would say almost more so than the downgrading. The ongoing uncertainty about how they are going to write off some of the private sector debt in Greece is an almost greater source of instability in the eurozone.”