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Some European officials had hoped the European Stability Mechanism could be increased to €750 billion at the same time the IMF got commitments to raise its firepower against contagion to about $1,000 billion.
But the G20 communiqué made clear that IMF shareholders, including the US and the UK, were unwilling to move simultaneously with the eurozone. “There is broad agreement that the IMF cannot substitute for the absence of a stronger European firewall and that the IMF cannot move forward without more clarity on Europe’s own plans”, said Timothy Geithner, the US Treasury secretary.
The political pressure puts Berlin in an awkward position ahead of a vote in the Bundestag to approve a €130 billion Greek bailout. Wolfgang Schäuble, the German finance minister, publically reiterated his government’s insistence that an increase was unnecessary, saying it would create “disincentives” for countries like Italy and Spain to continue reforms.
There were signs, however, that Germany’s position was softening. Germany has become increasingly isolated within the eurozone with the Dutch government vocally supporting the increase; Finland, Germany’s other traditional ally, has also indicated it would be willing to back an increase.
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