IMF may need billions of extra finding to stem European debt crisis - Lagarde

PanARMENIAN.Net - Christine Lagarde has signaled that the International Monetary Fund (IMF) may have to tap its members for billions of pounds of extra funding to stem the European debt crisis.

The head of the IMF has warned that its $384bn (£248bn) war chest designed as an emergency bail-out fund is inadequate to deliver the scale of the support required by troubled states.

In a document distributed to the IMF steering committee at the weekend, Ms Lagarde said: "The fund's credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios. Our lending capacity of almost $400bn looks comfortable today, but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders."

The suggestion came after European officials revealed they were working on a radical plan to boost their own bail-out fund, the European Financial Stability Facility (EFSF), from €440bn (£384bn) to around €3 trillion.

The plan to increase the EFSF firepower is the crucial part of a three-pronged strategy being designed by German and French authorities to stop the eurozone's debt crisis spiralling out of control. It also includes a large-scale recapitalisation of European banks and a plan for an "orderly" Greek default.

The plan, which would aim to build a "firebreak" around the indebted eurozone countries, emerged at the IMF annual meeting in Washington where global leaders united to demand urgent action from European politicians.

Despite the developments, traders warned that the failure of politicians to agree a solid rescue plan would result in more turbulence on global stock markets, The Telegraph reported.