EU finance chiefs to discuss IMF loans, new treaty

AP News
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Posted: Dec 19, 2011 8:19 AM
EU finance chiefs to discuss IMF loans, new treaty

European Union finance ministers have to figure out Monday how they will split up the euro200 billion ($261 billion) in extra loans they have promised the International Monetary Fund Monday in an effort to boost the eurozone's crisis firewall.

Reaching the euro200 billion target may become difficult after the U.K., the largest economy among the 10 EU states that don't use the euro, said it won't contribute any additional funds to the IMF. Hungary, Romania and Bulgaria have also ruled out sending any additional money to the Washington-based fund.

Earlier Monday, Poland's finance minister Jacek Rostowski said his country plans to lend around euro6 billion ($7.8 billion) to the IMF by committing reserves of the National Bank of Poland. Denmark, which will take over the EU presidency from Poland in January, has said it will contribute euro5.4 billion, while Sweden, another non-euro state, has promised to contribute an as yet unspecified amount.

In their afternoon conference call, the ministers will also compare notes on a first draft for a new treaty meant to tighten fiscal discipline within the eurozone, which was circulated Friday, said Kacper Chmielewski, spokesman for the Polish delegation to the EU.

Of the 27 EU states, only the U.K. has said it will definitely not join the new accord, while the nine other non-euro states have indicated their support as long as their parliaments agree.

The preliminary deals to set up a new treaty and provide up to euro200 billion in new loans to the IMF were the main outcomes of an EU summit 10 days ago, which has so far failed to convince financial markets that Europe can exit its escalating debt crisis.

Investors were disappointed that the eurozone did not agree to commit more money to its own bailout funds or open the door for large-scale intervention by the European Central Bank. Many economists have called on the ECB to spend much more money buying up government bonds in an effort to lower the borrowing costs of struggling states like Italy and Spain and boost economic growth.

However, ECB President Mario Draghi again dampened hopes for a bigger role of the ECB in an interview published in the Financial Times Monday.

"The important thing is to restore the trust of the people _ citizens as well as investors _ in our continent," Draghi was quoted as saying. "We won't achieve that by destroying the credibility of the ECB."

The ECB chief, who will speak in front of a committee of the European Parliament later Monday, also broke a taboo by acknowledging for the first time the possibility of a country leaving the eurozone _ although he immediately stressed that a euro exit would not be a solution to any country's financial troubles.

"Leaving the euro area, devaluing your currency, you create a big inflation, and at the end of that road, the country would have to undertake the same reforms that were due to begin with, but in a much weaker position," he said.

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Vanessa Gera in Warsaw, Poland, and Meera Selva in London contributed to this story.