IMF warns on funding levels if crisis worsens

image captionEU and IMF inspectors are due to return to Athens this week

The International Monetary Fund (IMF) has warned it may not have enough money to bail out larger eurozone countries if the debt crisis were to spread.

IMF chief Christine Lagarde says the global lender can meet its current obligations but this could change if the crisis worsens.

Meanwhile the Greek finance minister says Greece will do "whatever it takes" to reduce its deficit.

Evangelos Venizelos was speaking after a meeting with Ms Lagarde.

Publicly, world leaders have said there is "no plan" for a Greek default.

But reports suggest leaders are working on a plan to allow Greece to default on its debts and remain in the euro.

It is believed that policymakers feel they need to concentrate on recapitalising banks and boosting the funds of the European Financial Stability Facility (EFSF).

BBC business reporter Joe Lynam says that the plan to increase the EFSF's financial firepower could see the money available to bail out EU banks and member states rise from 440bn euros ($596bn; £385bn) to about 2 trillion euros.

He added that the plan could also enable the European Central Bank (ECB) to buy more Italian and Spanish bonds to prevent those two countries needing a full bailout.

Meanwhile, Antonio Borges, the head of the IMF's European department, has urged the ECB to play a bigger role in fighting the crisis.

"It is very important that we see a combination of the ECB and the EFSF," said Mr Borges.

"The ECB is the only agent that can really scare the markets."

'Back to the 1960s'

In a speech to a banking industry group in Washington, Greek finance minister Evangelos Venizelos said Greece was ready to take "the necessary initiatives at any political cost" to reduce its debt.

He also pledged Greece would stay within the euro, but denied that the Greek crisis was enough on its own to cause a "domino effect" elsewhere in the eurozone.

Earlier, Greece's minister for international economic relations, Constantine Papadopoulos, said leaving the euro would be "catastrophic" for Greece.

"I personally think [leaving the eurozone] would take us back to the 1960s or 1970s," he told the BBC's Andrew Marr programme.

He later clarified that he was not referring to the political situation at the time, when the military took power in a coup, but the standards of living and the structure of the economy.

This week will see EU and IMF officials return to Athens to examine the country's progress on its deficit reduction plans.

Greece is still receiving money from an initial rescue, agreed in May last year, although it will not receive the next tranche if inspectors rule that it is not keeping up with its spending cut targets.

Analysts say this is a real possibility.

Without this month's loan, Greece will not be able to meet its debt payments by the middle of next month.

A second EU-IMF bailout was agreed for Greece in July of this year but that still has to be ratified by the parliaments of a number of eurozone member states.