The European Union on Friday pledged more than $100 billion in new loans to the International Monetary Fund to bail out countries in the global recession and urged the G20 economic powers to help double its funding.
EU leaders also agreed at a summit to double to €50 billion a crisis fund which can be used by struggling member states which do not use the euro currency and has already been tapped by Latvia and Hungary.
But as expected, they ignored US pressure to raise the size of their economic stimulus plans and said the priority for now was to exercise budgetary restraint and tighten supervision of financial markets, products and centers.
“Europe’s entire political leadership has chosen to seek ambitious results at the London summit,” French President Nicolas Sarkozy told reporters.
Making clear the 27-nation bloc had gone through two days of difficult discussions at a summit that had little impact on financial markets, he said: “This is a clear position. It wasn’t at all sure beforehand that we would get there.”
The IMF has been stretched by making loans to countries such as Ukraine and Pakistan during the worst financial crisis since the 1930s and has asked for the funds it can use for bailouts to be increased to $500 billion.
Prime Minister Gordon Brown, who hosts a summit of the Group of Twenty leading and emerging economies on April 2, said the new IMF loans were only for emergencies. Diplomats said the EU hoped to persuade China, Saudi Arabia and others to help.
In the latest sign of the depth of the crisis, industrial output in the 16 countries in the euro zone fell 3.5% against December, making a 17.3% annual drop, official data showed on Friday.
A German parliamentarian caused a stir by saying the European Central Bank had a plan to prevent member states that use the euro going bankrupt, with Ireland and Greece the top candidates for aid. But EU leaders denied this.
“We intend managing our way through this difficulty,” said Irish Prime Minister Brian Cowen. “This recession will pass as others have.”
STANDING FIRM ON STIMULUS PLANS
Although the US Federal Reserve pledged on Wednesday to pump $1 trillion into the US economy on top of an existing $787 billion stimulus package, the EU leaders say their smaller stimulus plan is enough to combat the crisis.
Many analysts are unconvinced by EU efforts to combat a crisis that has pushed up unemployment and caused growing public discontent, including protests by up to 3 million people in France on Thursday.
“The IMF move is useful, but it could have been more,” said Daniel Gros of the Centre for European Policy Studies. On the European stimulus packages, he said: “I am not sure there is much more they can do at this stage which would have immediate effect -- except tax cuts, and we know that European consumers tend to save whatever they get in tax cuts.”
Goldman Sachs called in a research note for a coordinated fiscal easing throughout the euro zone of €1.0 trillion this year and next -- compared to the current €400 billion effort that includes the effect of added welfare spending.
In their summit declaration, the EU leaders underlined calls for tighter regulation to avoid a repeat of the crisis, urging “appropriate regulation and oversight of all financial markets, products and participants that may present a systemic risk.”
“Everyone is in agreement about tax havens ... hedge funds, remuneration, stopping bank off-balance-sheets and the need for regulation,” Sarkozy said of accounting practices, financial products and excessive pay blamed by many for the crisis.
But diplomats said the leaders agreed no EU state should appear on a blacklist of tax havens after a row between Germany and financial centers such as Switzerland and Luxembourg.
The leaders agreed a list of schemes to benefit from a further €5 billion of EU funds, including the Nabucco pipeline due to bypass Russia to bring Caspian gas to Europe. They also agreed plans to bolster ties with Ukraine, Georgia and four other former Soviet republics, risking Russia’s ire. (Reuters)