Cash for credibility: Laundering European rescue funds through the IMF

Economist
December 10, 2011

As A new game plan for saving the euro by enforcing fiscal discipline takes shape (see article), there is growing speculation that Europe’s central bankers could help in another way—by channelling rescue funds through the IMF.

The ECB is not allowed to fund member governments, but it or national central banks could lend to the IMF. Those national central banks have provided resources to the fund before, which is why the ultra-orthodox Bundesbank does not object to filling the IMF’s coffers—even if that money were then used to provide rescue funds for countries such as Italy or Spain.

In many ways this money-laundering would be a clever wheeze. It gets around the central bankers’ hang-ups. It provides discipline, since the fund’s conditionality would help to keep Europe’s peripheral economies on track. And it could elicit funds from others. America won’t contribute anything more to the IMF, but big emerging markets seem willing to top up the fund’s resources, provided the Europeans do so too. With Europe’s own rescue fund—the European Financial Stability Facility—floundering, the IMF may be the best route to raising real money.

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