PARIS — Finance chiefs from the Group of 20 rich and developing nations wrangled Friday over whether the eurozone should pick up the whole bill for its escalating debt crisis or whether the rest of the world should help out more.
The International Monetary Fund — the world’s lender of last resort for cash- strapped countries — has until now funded about a third of the cost of the bailouts of Greece, Ireland and Portugal. But while some, including the United States, are arguing that Europe has more than enough money to spend its way out of the crisis, others are pushing for more support as the currency union’s debt troubles risk dragging the world economy back into recession.
In recent days, markets have been buoyed by hopes that the 17 countries that use the euro will sort out key aspects of a more aggressive solution to their debt crisis in time for an EU summit Oct. 23 and a Group of 20 meeting in early November.
Any such deal is going to be extremely costly. As well as shoring up Europe’s weaker banks, the eurozone has to come up with a strategy to stop large economies like Italy and Spain from joining the bailout club.
To do that, the region’s bailout fund, the $608 billion European Financial Stability Facility, is expected to soon start buying their bonds on the open market — the hope is that will support their prices and keep a lid on their borrowing costs to allow them to carry on funding themselves in the markets.
But most economists, and a growing number of European officials, believe that the EFSF is way too small to stabilize both countries and recapitalize banks in other cash- strapped countries.
While the eurozone is working on ways to maximize the impact of its limited resources, there is a growing drive to get the IMF to stump up more cash.
