The impetus moves back to Washington

Having been a little indecisive earlier in the session, the euro ended the morning session near the highs (above 1.28 on EUR/USD) on the back of the latest reports that the IMF is discussing a substantial increase in its resources ahead of the next G20 meeting next month. We’ve been down this road before, in terms of sanctioning greater involvement from the IMF, leading to the pledge from the EU towards the end of last year to contribute up to EUR 200bln in new resources.

Although today’s move is based more on speculation than firm announcements, the difference appears to be that the IMF is looking to increase its resources so as to offer a buffer for the world economy against the impact of a worsening of events in Europe. The amounts in question are also more substantial, with talk of a USD 1trln expansion of its lending resources. Those nations with the capability to extend funding to the eurozone rescue vehicles are only likely to do so under the auspices of the IMF framework, which is infinitely more experienced and robust than those in place in Europe (EFSF turning into the ESM). So the fact that the IMF is seriously exploring this possibility is a positive development.

As always though, the difficulty is bringing everyone on board. The UK refused to sign up to the commitment from the EU towards the end of last year and the noises today are that resources should be aimed at specific countries, rather than the euro area as a whole. Other nations are likely to have their own views and conditions, which could make expanding the facilities to the extent desired a tall order for the IMF.