The Big Fat Greek Debt Crowd-Out

by Swaminathan S. Anklesaria Aiyar

Wall Street Journal -Europe
May 20, 2010

Europeans have long lectured emerging markets on the evils of fiscal profligacy and the virtues of prudence. But today, as amusing as it might be to see Europeans hoisted by their own petard, the Continent is no laughing matter. Emerging markets may soon worry that Europe is crowding them out of the International Monetary Fund's limited lending capacity.

After global markets froze in 2008 and exposed the IMF's lending capacity as insufficient, its members agreed in 2009 to triple its lending capacity to $750 billion (about €600 billion). But today, much of this money is being diverted to rich European countries. If the European financial crisis spreads to emerging markets — improbable but possible — the IMF may not have enough left for those very economies for whom it expanded its lending capacity.

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