Business Eurozone crisis IMF urges Europe to build bigger firewall around Italy and Spain

Guardian
January 23, 2012

EU leaders came under pressure from the International Monetary Fund on Monday to bolster the firewall around Italy and Spain, as talks between Greece and its creditors remained in deadlock for a third week.

The IMF director general, Christine Lagarde, told Brussels to drop its opposition to a bigger insurance fund, with a view to convincing world money markets that Europe has the firepower to protect vulnerable nations. The former French finance minister pointedly gave her warning in Berlin where Angela Merkel's conservative government has led opposition to providing bigger loans for the EU's bailout fund.

Lagarde's speech came as a senior Greek official warned the eurozone would "dissolve" if Greece was forced out of the euro after being offered what he described as non-negotiable but unaffordable rates of interest with its creditors.

Gikas Hardouvelis, who heads the economics team advising prime minister Lucas Papademos, said the EU would be abdicating its responsibility if it allowed banks, insurers and hedge funds to offset a 50% writedown of the country's debts by charging interest rates of around 4%.

He said that enforcing such rates would be the same as kicking Greece out the euro, in a speech adding to tension in Brussels.

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