“You need decisive action (in the euro zone),” he added. “You need to inspire confidence. … Do it quickly.”
BY POLYA LESOVA | MARKETWATCH
DAVOS, Switzerland — Firewall was once again the buzzword in discussions on the euro-zone debt crisis at the World Economic Forum’s annual meeting Saturday, with several senior officials from around the globe urging Europe to reinforce its defenses.
Japan, meanwhile, said it stands ready to help the euro zone, while the U.K. said it will consider increasing its contribution to the International Monetary Fund if the euro zone committed to a bigger firewall.
The call for the euro zone to put more money in its rescue funds has been a running theme in Davos this past week and comes ahead of Monday’s summit of European Union leaders in Brussels. U.S. Treasury Secretary Timothy Geithner and U.K. Prime Minister David Cameron urged Europe to boost its firewall earlier this week. Those calls grew on Saturday at a panel discussion here on the global economic outlook.
“It’s critical that euro-zone members develop a clear, simple firewall … to provide trust,” said Christine Lagarde, managing director of the International Monetary Fund. If the firewall is big enough, she said, it will not get used.
“No one is immune in the current situation,” she warned. “It’s not just a euro-zone crisis.”
Lagarde was reiterating her stance on the euro-zone crisis, which she outlined in a speech in Berlin earlier in the week. The IMF is currently aiming to raise up to $500 billion in additional lending resources, so it is better equipped to respond to the euro crisis and deal with other emergencies.
At the same discussion in Davos, U.K. Chancellor George Osborne said Britain will think seriously about providing further resources to the IMF if the euro zone boosts its firewall. “The euro zone needs to provide a significant increase in available resources,” Osborne said. The U.K. will not be willing to contribute more to the IMF “unless we see the color of their (the euro zone’s) money,” he said.
The euro zone’s current bailout fund, the European Financial Stability Facility, is backed by guarantee commitments from the member states for a total of 780 billion euros and has a lending capacity of 440 billion euros. Leaders have also agreed to establish a permanent rescue fund, the European Stability Mechanism, though critics say that the current financial resources in these funds are not large enough to definitively deal with the crisis.
Bank of Canada Governor Mark Carney certainly thinks so, saying the EFSF and ESM are “currently insufficient in size.”
Underscoring the level of global concern about the euro crisis, Motohisa Furukawa, Japan’s minister for economic and fiscal policy, also urged Europe on Saturday to establish a firewall to calm down the markets.
In separate comments, Japanese Prime Minister Yoshihiko Noda said Japan “stands ready to support the euro zone as much as possible.” He added that Europe’s sovereign debt crisis is the biggest risk to the world economy and his nation is working with South Korea and India to reduce the risk of the crisis spreading to Asia.
Officials in Hong Kong are just as worried about the European situation.
“I’ve never been as scared as now about the world,” said Donald Tsang, chief executive of the Hong Kong special administrative region. “I agree with Christine that no one is immune.”
Tsang noted the world financial system is much more interconnected today than at the time of the Asian financial crisis in the late 1990s.
“You need decisive action (in the euro zone),” he added. “You need to inspire confidence. … Do it quickly.”