Sometimes, government officials tell the truth, and when they do, watch out. It might be a good idea to hold on to your wallet.
A recent example is International Monetary Fund Managing Director Chrstine Lagarde commenting on the European debt crisis in Berlin on Jan. 23. Even though the European Financial Stability Facility (EFSF) has already committed €440 billion, the European Central Bank (ECB) €220 billion, and the IMF €78.5 billion to propping up troubled sovereigns Portugal, Italy, Ireland, Greece, and Spain (PIIGS) — some €738.5 billion, or almost $1 trillion in total — Lagarde said, “these moves form pieces, but pieces only, of a comprehensive solution.”
If Spain and Italy enter the equation, said Lagarde, all bets are off, saying a “larger firewall” was needed. Without it, Italy and Spain “could potentially be forced into a solvency crisis by abnormal financing costs.”
“I am convinced that we must step up the Fund’s lending capacity,” Lagarde declared, adding, “The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of ‘innocent bystanders’ infected by contagion, anywhere in the world. A global world needs global firewalls.”
Saying the world’s financing shortfall “[i]n the coming years” could be as much as $1 trillion, the IMF chief proposed a dramatic expansion of her agency. “To play its part, the IMF would aim to raise up to $500 billion in additional lending resources,” she said, alluding to a proposal already on the table to double the Fund’s $364 billion of quotas. That includes doubling the United States’ quota in the fund to $128 billion.
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