The head of the International Monetary Fund Christine Lagarde wants the eurozone to have a larger bail-out fund to prevent the likes of Italy and Spain ending up in default.
Speaking in Berlin, Lagarde (pictured) said that fundamentally solvent countries like Italy and Spain being forced into a financial crisis “would have disastrous implications for systemic stability”.
Lagarde said she would like to see a clear timetable from the eurozone authorities on how to fold the existing European Financial Stability Facility into the new European Stability Mechanism. She would also like to see the size of the fund increased as well as see support garnered from the European Central Bank.
The ESM is set for launch in July and is expected to be around £420bn in size. It has been reported that some leaders, such as Italian prime minister Mario Monti, would like to see the size of the fund doubled. According to the FT, a paper presented to the IMF board implied that the eurozone would need to double its existing £420bn of resources.
The paper is understood to have said that there would be global demand of around £840bn for bail-outs in the next two years and has said the IMF should look to raise half of it.
The IMF is under pressure from the likes of the US and emerging markets shareholders to not lend more money to western Europe until eurozone leaders have found a credible solution to the crisis.
The IMF is set to release its latest global economic forecasts on Tuesday. They are expected to be lower.
Lagarde said: “Even these lower forecasts assume a constructive policy path that is by no means assured.”