G20 summit expected to back IMF plan for bigger bailout fund

France’s biggest bank, BNP Paribas, unexpectedly downgraded by Standard & Poor’s A summit of G20 finance ministers in Paris on Saturday is expected to back moves by European leaders and the International Monetary Fund for a more substantial bailout fund to rescue indebted nations and prevent the eurozone’s collapse, according to sources close to the meeting. The IMF is expected to win support for an enhanced rescue facility, at the same time as eurozone nations move closer to adopting the so-called “big bazooka” of a huge insurance fund or wider guarantees to underwrite Greece and other ailing countries. As the finance ministers arrived in Paris, France’s biggest bank, BNP Paribas, was unexpectedly downgraded by Standard & Poor’s because of its weakening financial profile. BNP had been one of only three major global banks to be rated AA and the downgrade to AA minus came with an affirmation of ratings of other banks. The ratings agency now believes other banks are more likely to secure government support if they run into difficulty. While many analysts still expect Greece to default and repay only 40% to 50% of its debts, there is concern that a firewall will first have to be put in place to prevent a domino effect spreading to Portugal, Italy and Spain and banks holding large amounts of Greek debt. Speaking ahead of the G20 meeting, the chancellor, George Osborne, said he was confident that eurozone leaders, supported by the G20, would back more comprehensive measures to protect the currency union from breaking up. Osborne believes piecemeal reforms are likely to further undermine confidence and scupper efforts to end the crisis. Britain will also come under pressure from its European partners this weekend to lend its support to the financial transaction tax proposed by Brussels, and championed by the French president, Nicolas Sarkozy, the current chairman of the G20, as a way of taming speculation and raising funds from the financial sector. G20 leaders are expected to agree a set of measures to deal with the sovereign debt crisis at a meeting in Cannes next month. European Union leaders, including the prime minister, David Cameron, will assemble at an EU council meeting on 23 October. Many of the world’s largest investor groups have warned that failure to agree could trigger a run on the euro and the bankruptcy of several countries, possibly including Italy and Spain. The Italian prime minister, Silvio Berlusconi, narrowly survived a confidence vote on Friday , which he said would allow Rome to press ahead with budget cuts to bring about a balanced budget by 2013. Markets viewed the Italian vote and the mood of optimism in Paris as signals that progress was being made and that leaders would reach agreement on a coherent package in Cannes. The FTSE 100 climbed by 1.2% and the Dow Jones industrial average in New York opened up more than 1%. Osborne said: “The countdown to the Cannes summit of world leaders begins this weekend. The biggest boost to global and British growth would be a resolution to the eurozone crisis. “Momentum is now finally building towards that. We should use this weekend to keep up the pressure and step up the pace.” The eurozone has put in place a European financial stability facility (EFSF) worth €440bn (£382bn) to assure investors in European sovereign debt that their money is safe. Osborne believes that a €2tn fund is necessary to show that the bloc stands behind any country that gets into financial difficulties. In recent weeks EU officials have argued that the EFSF fund could be used as capital for a bank that needs to borrow further funds. Some officials have moved away from the idea, arguing that it amounts to the same highly leveraged institution that triggered the credit crunch. They argue that to save Italy and Spain from being locked out of international credit markets an insurance fund could be created that would guarantee the first 20% of private-sector losses on Spanish and Italian bonds, and perhaps 30% on those of more peripheral, weaker countries. The move would bypass the European Central Bank, which has fretted about using its balance sheet to issue huge guarantees or loans. Germany has made positive noises and Paris has indicated that an insurance scheme may be acceptable. European debt crisis Financial crisis Euro Currencies European monetary union Europe European Union Europe Phillip Inman David Gow Heather Stewart guardian.co.uk

Posted by on October 14, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.