Central Banks Team Up to Help the Euro

By mosesbet · Filed Under Market News Comments Off on Central Banks Team Up to Help the Euro 

The world’s most prominent central banks banded together recently to help provide EU banks with discounted dollar funding. This is due to the instability currently associated with the Euro. The dollar is now seen as the safer investment by most analysts. Many banks in the EU are being faced with the inevitable credit crunch that accompanies a debt crisis. The situation has driven the finance ministers of the EU to request the International Monetary Fund’s (IMF) aid in preventing further economic disaster. All these moves are likely to provide further support to the Euro.

The banks that came together due to the emergency move, which was orchestrated by the Federal Reserve of the United States, were: the central banks of Britain, Switzerland, Japan and Canada along with the Central bank of Europe. The shares in Europe, and the Euro itself began to rise due to the actions of the banks. However, the European ministers of finance have begun to acknowledge that they made need more aid from the IMF.

Germany’s Role in Alleviating the Crisis

Wolfgang Schaeuble, Minister of Finance from Germany, stated that Germany was amenable to increasing the resources of the IMF via drawing rights or loans taken bilaterally. This is the reverse of the stance that Berlin had taken earlier at the Summit held at Cannes (G20).

This switch in policies is due to Germany’s insistence that the rest of the EU agree on changes to the treaty in order to create the power for the countries in the Euro zone to be able to amend their budgets. This will occur if these countries are unable to adhere to the European Union’s debt and deficit rules.

The Role of the IMF

The European Union has planned, in detail, how to insure the initial 20%-30% of the new bond problems of countries in financial difficulty. It plans to create investment funds in order to bring in investors from foreign countries and entice them into buying EU government bonds.

The two schemes are estimated to be fully operational at the start of 2012. The European Financial Stability Facility (EFSF) will be able to provide €250 billion as leverage post aiding the financial rescue of Greece. The goal was for IMF to support the new zeal of the EFSF.

 

 

 

 

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