MEXICO CITY |
MEXICO CITY (Reuters) – The world’s leading economies worked on Sunday to line up a deal in April on a second global rescue package worth nearly $2 trillion to stop the euro-zone sovereign debt crisis from spreading and putting at risk the tentative recovery.
Germany said it would make a decision some time in March on strengthening Europe’s bailout fund, a move other Group of 20 countries say is essential to clear the way for throwing extra funds into the International Monetary Fund.
The two actions are part of the G20’s efforts to build up massive international resources by the end of April – when the group next meets – and convince financial markets they can stem the euro-zone’s deep problems.
It would mark their boldest effort since 2008, when the G20 mustered $1 trillion to help rescue the world economy.
German Finance Minister Wolfgang Schaeuble said European leaders will tackle the adequacy of the region’s firewall during March. The issue will be on the agenda of a European Union summit next week.
“But the month of March goes from March 1 to March 31. It will be reviewed again, also in the light of the developments that have since occurred, whether the stated dimension of the (European bailout) mechanism is enough or not,” he told reporters.
Berlin’s willingness to discuss the size of Europe’s firewall marks an important shift.
Facing political opposition to a second Greek bailout in its parliament, it has balked at enlarging Europe’s rescue fund on the grounds that it would undermine efforts to impose fiscal discipline on indebted countries.
The softening of its stance came as Schaeuble said he assumes the Greek bailout package will win Bundestag support on Monday.
An agreement by Europe to merge its temporary and permanent bailout vehicles would create a $1 trillion war chest and open the door for other G20 countries to meet the IMF’s request for $500-$600 billion in new resources, on top of its current $358 billion in funds.
Put together, this would total around $1.95 trillion in firepower.
But the G20 has no intention of easing its pressure on Europe by giving it a strong signal now that new IMF money is in the bag. Its communique when two days of ministerial meetings end on Sunday will merely state that the world’s leading economies will review the resources of the IMF in April without setting a date for a deal, G20 officials said.
But they left no doubt the cash is needed to calm markets and secure economic growth. “In order to overcome the crisis, you have to get ahead of the curve and have a big enough bazooka,” said Olli Rehn, European Commissioner for Economic and Monetary Affairs.
Japan’s Finance Minister, Jun Azumi, said his country stood ready to contribute IMF funds once Europe has acted.
“I expect debate on strengthening of the IMF lending capacity will progress on condition that the problem of Europe’s debt crisis is put to an end by the G20 meeting in Washington in April,” he said.
OIL PRICE THREAT
Finance chiefs in their communique on Sunday will also cite rising oil prices driven by geopolitical risks as a threat to a tentative world recovery that is showing signs of strength, diplomatic sources said.
The price of oil vaulted over $125 a barrel on Friday, the highest level in nearly 10 months on concerns over Iran’s nuclear ambitions.
Oil-producing members of the G20 said on Saturday they would take measures to avoid a rise in petroleum prices from hurting the world economy, Italy’s deputy economy minister said.