Wall Street Journal
December 14, 2011
Those looking for the € sign in the conclusions of last week’s marathon European Union leaders’ summit momentarily rejoiced: “euro area and other Member States will consider, and confirm within 10 days, the provision of additional resources for the IMF of up to €200 billion ($270 billion), in the form of bilateral loans, to ensure that the IMF has adequate resources to deal with the crisis. We are looking forward to parallel contributions from the international community. ”
But if market participants are under the impression that the €200 billion is fresh and firm funds, they may be in for a disappointment.
First of all, is this new money?
According to a senior EU diplomat we spoke to just before the Thursday-Friday summit last week, part of these funds may not be fresh: rather, they would come from money already sitting in national central banks as part of the 2009 New Agreement to Borrow the International Monetary Fund set up to bolster its capacity to respond to the then-tail end of the global financial crisis.
The official said that part of these funds were callable but had not been transferred to the IMF NAB arrangement.
The reason this is important is that whatever part of the €200 billion comes from the 2009 NAB will already be accounted for at the IMF, meaning that the actual new firepower achieved through the bilateral EU loans would be lower than anticipated.
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