Are taxpayers stumping up for the eurozone?
- 3 November 2011
- From the section UK Politics
No, the British government will not lend money to the eurozone.
No, it will not permit the IMF to lend money to the eurozone.
But yes, David Cameron and George Osborne will give more resources to the IMF which it may choose to lend to eurozone countries.
Confused? You're not the only one but, after something of a struggle to get my brain around this, let me see if I can explain.
After 48 hours of chaos and confusion in the eurozone, David Cameron believes that the way to increase confidence in the global economy is to show that the International Monetary Fund has the funds necessary to support any countries that get into trouble if this crisis continues.
To put it more simply he wants the world to send out the message that the IMF will stand behind big countries, who might get into trouble if this crisis persists, such as Italy and Spain. In turn, that means that Britain, along with its other founder members, will have to stand behind the IMF.
The prime minister wants to see an increase in the $950bn funds the IMF can call on. Currently Britain provides 4.5% of that - around £29.5bn. If the IMF funds increased so too would Britain's share of them.
These, though, are not grants to the IMF. They are not even loans to it. They are not funds which could be spent on pensions or schools or hospitals. Unlike, for example, the £3bn lent directly by the UK to Ireland the money would not appear on the national balance sheet. They are promises to provide funds if called upon (technically they are what's called a contingent liability and are part of our foreign reserves).
The prime minister is stressing that no country has ever lost money when the IMF has played what he calls its "proper role."
What he means by that phrase "proper role" is the IMF lending to countries and not to the proposed new eurozone bailout fund.
The IMF already lends money to Greece, Ireland and Portugal as well as 50 other nations around the world.
Thus, David Cameron insists that British taxpayers' money is not being used to bail out the eurozone. He says that it is being made available to stand behind a move to give confidence to the global economy.
That won't be enough to satisfy some Eurosceptics. Normally an IMF loan comes with strings attached - countries are told to reform their public finances or pension systems or liberalise markets.
Sometimes they're told to devalue their currency. That, of course, cannot happen for eurozone countries. Thus, John Redwood is one of those who argues that the IMF should not be prepared to bail out a eurozone country - part, perhaps, of a future United States of Europe - as it would not bail out California - part of the United States of America.
Now, you may ask, surely there is no such thing as a totally safe loan? Surely we must be putting some money at risk if we are increasing our contribution to the IMF?
The answer to those questions tells you a lot.
Treasury sources tell me that we could only lose our money if there was a global economic disaster and, in that event, we'd have a lot more to worry about than a few billion in IMF funds.
Only a few days ago David Cameron told me he was pleased that the eurozone deal meant that world leaders could now deal with other matters. If only...