Leading world economies announced on Friday that they would collectively add another $420 billion to IMF funds in order to protect the world economy. This was mainly done over fears about Europe’s debt situation.
The IMF funds are mainly meant for supporting Europe’s fragile economy if there will be any serious problems occurring in Spain or Italy, Europe’s 4th and 3rd largest economy.
“This is extremely important, necessary, an expression of collective resolve,” IMF Managing Director Christine Lagarde said. “Given the increase that has just taken place, we are north of a trillion dollars actually. So I was a bit mesmerized by the amount.”
The $1 trillion figure is taken from the combination of the current funds implemented and the new funds that were won on Friday.
Greece, Ireland, and Portugal all have already taken bailouts. Investors are now worried that Spain and Italy will meet the same fate. If Spain and Italy fail to bring down their debt burdens quickly enough, they may experience the same situation as the former 3 countries.
The IMF was originally created to help struggling emerging economies, but focus has recently turned to the industrialized and developed countries of the European Union. The emerging economies that are members of the IMF have lately been pressing for more of a say in matters at the IMF due to this change of focus. In order to secure the funds, the IMF decided to increase the many of the contributing emerging nations’ voting power.
In a central bank statement, China said it “will not be absent from the table” of increasing funds for the IMF, but it did not specify any amount.
This move will surely help to ease the world’s fears over the struggling E.U. economy. However many investors still seem quite cautious. The Spanish 10 year bond has remained at the 6 percent mark, which is not reassuring.
The IMF stated that the availability of the funds is meant to help the E.U. buy time to fix their economies. This will mean pushing more reforms from the E.U. and taking those difficult steps towards more austerity measures.