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By Tim Shipman

 

 

 

The International Monetary Fund this morning revealed it wants to boost its own bailout fund to $1trillion - even though the single currency countries have done nothing to boost their own fund.

Chancellor George Osborne has already indicated that he is prepared to use British taxpayers cash to boost the IMF’s resources.

It comes as Prime Minister David Cameron meets with Italian PM Mario Monti - as part of a hectic week of talks in capitals across Europe - following the downgrading of the credit rating of Italy and eight other eurozone states, as well as the EU’s bailout fund.

The current IMF account contains about $400billion so increasing it to $1trillion means finding another $600billion.

IMF boss Christine Lagarde said: 'To this end, fund management and staff will explore options for increasing the fund's firepower.'

Unemployment at highest level since 1995 as young people pay the price of slowing economy 

The UK contributes 4.5 per cent of IMF resources, meaning Britain would be expected to pay in another $27billion - £17.5billion.

Parliament has already approved spending of £40billion of UK funds for the IMF, of which the international financial watchdog has spent £30billion.

In a move that is set to spark a major Tory rebellion, Downing Street revealed that the Chancellor is prepared to ask Parliament for extra funds, likely to be at least £7.5billion.

Italian Prime Minister 'Super' Mario Monti is in London today to meet British PM David Cameron.

The pair will hold a closed-door meeting with financiers and investors aimed at assessing international appetite for Italy's government debt.

People attending the meeting, which follows talks with Cameron at 1pm, said up to 100 senior London bankers and investors were invited and the event was organised by the London Stock Exchange. 

Monti is due to hold a press conference at 4.15pm and will then give a speech.

Italy, which saw Standard & Poor's cut its sovereign credit rating by two notches on Friday, has implemented a series of austerity measures and structural reforms over the last two months aimed at reining in its debt and making its economy more competitive.    

Monti, whose technocrat government was appointed in November amid doubts about the sustainability of the country's debt burden, told the Financial Times that eurozone leaders should do more to help lower Italy's borrowing costs.    

He called for euro zone creditors to recognise Italian economic policy progress and said he wanted a 'visible improvement' in its 10-year borrowing costs of around 7 per cent, widely viewed as unsustainable for an economy saddled with a debt of around 120 per cent of GDP.     

He said: 'If this strong movement towards discipline and stability is not recognised as taking place... then there will be a powerful backlash in the countries which are being submitted to a huge effort of discipline.'

What is more Mr Osborne indicated earlier this week that he may even contribute more than the UK’s usual share of 4.5 per cent.

A No 10 spokesman refused to set an upper limit on what Britain will contribute. ‘The Chancellor said on Monday that if it was a decent request from the IMF, then of course he would be willing to go to Parliament to make that request.’

Asked what the expected scale of any increased UK contribution might be, the spokeswoman said: ‘We are not in a situation where we can look at numbers yet.’

She added: ‘The money from the IMF is to support countries, not currencies. 

'This money is not a substitute for the eurozone providing resources to back up its own currency.’

Officials defend handing extra money to the IMF on the grounds that loans to the fund have always been repaid in the past.

But Tory MPs will be furious that the government is prepared to pour money into helping the Eurozone when EU leaders have failed to set up the ‘big bazooka’ bailout mechanism which the financial markets are demanding.

The European Financial Stability Facility is widely regarded as a ‘peashooter’ which does not even contain enough money to prevent meltdown in Italy.

If it comes to a vote, Labour have also indicated that they will oppose an increase in the British contribution to the IMF – making defeat a real possibility.

News of the IMF's plan came as developing countries were warned by the World Bank that they must prepare for the 'real' risk that the world could slump back into the kind of recession that hit in 2008 and 2009.

It said an escalation in the euro area's debt crisis meant 'Europe was probably already in recession' and that if it deepened then global economic forecasts would be significantly lower.

Chief economist Justin Lin said that, on the back its report sharply cutting its world economic growth expectations, the 'sovereign debt crisis in the eurozone appears to be contained'.

But, he added: 'The risk of a global freezing-up of the markets and as well as a global crisis similar to what happened in September 2008 are real.'

 Dire: The World Bank cut its forecast for growth in developing economies to 5.4 per cent for 2012 from its previous forecast of 6.2 per cent saying expansion in India (pictured) had slowed already

The World Bank predicted world economic growth of 2.5 per cent in 2012 and 3.1 per cent in 2013, well below the 3.6 per cent growth for each year projected in June.

European markets fell on the news of the forecast, but then rose slightly with the IMF's news.

Hans Timmer, director of development prospects at the bank, said: 'We think it is now important to think through not only slower growth but sharp deteriorations, as a prudent measure.'

The World Bank said if the euro area debt crisis escalates, global growth would be about 4 percentage points lower.

It forecast high-income economies would expand just 1.4 per cent in 2012 as the euro area shrinks 0.3 per cent, sharp downward revisions from growth forecasts last June of 2.7 per cent and 1.8 per cent, respectively.

 

Nicolas Sarkozy will today try and kick-start the French economy and bring down its unemployment rate which is nudging at 10 per cent.

The conservative Mr Sarkozy is expected to run, but is currently lagging in the polls and on the defensive after the country was stripped of its triple A credit rating by Standard & Poor's.

Today's meeting is focusing on job creation.

The opposition Socialists say the meeting is too little, too late, and is really aimed at launching Mr Sarkozy's presidential campaign.

It cut its forecast for growth in developing economies to 5.4 per cent for 2012 from its previous forecast of 6.2 per cent, saying expansion in Brazil and India and to a lesser extent Russia, South Africa and Turkey, had slowed already.

It saw a slight pick up in growth in developing economies in 2013 to 6 per cent. But the report said threats to growth are still rising, suggesting the outlook remained highly uncertain.

It said: 'The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.'

It also cited failure so far to resolve high debts and deficits in Japan and the United States and slow growth in other high-income countries, and cautioned those could trigger sudden shocks.

On top of that, political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects.

It said that while Europe was moving toward a long-term solution to its debt problems, markets remained skittish.

On balance, the World Bank said global economic conditions were 'fragile and there remains great uncertainty as to how markets will evolve over the medium term'.

Against that backdrop, it said developing countries were even more vulnerable than they were in 2008 because they could find themselves facing reduced capital flows and softer trade.

In addition, many developing countries have weaker finances and wouldn't be able to respond to a new crisis as vigorously.

China's growth - forecast in the report at 8.4 per cent in 2012 - could help bolster imports and gives it 'big fiscal space' to respond to changing conditions, Lin said.

'No country and no region will escape the consequences of a serious downturn,' the World Bank said, adding that now was the time for developing countries to plan how to soften the impact of a potential deep crisis.

A serious crisis would manifest itself in not just reduced trade flows, but also reversal of capital flows, making it hard for countries, especially in Eastern Europe and Latin America, who have debt coming due.

The World Bank pointed out that since last August risk aversion to Europe has shot up and 'changed the game' for developing countries that have seen their borrowing costs escalate sharply and the flow of capital to them decrease.

  High-income countries have prime responsibility for preventing a crisis, the World Bank said, but 'developing countries have an obligation to support that process both through the G20 (Group of 20 rich and developing countries) and other international fora.'

Among other things, developing countries 'could help by avoiding entering into trade disputes and by allowing market prices to move freely'.

It also said developing-country governments should start contingency planning to identify spending priorities and to try to shore up safety net programs. Those contingencies should take into account possible drops in commodity prices and a fall in capital inflows, the World Bank said.

The World Bank forecast is lower than ones from the International Monetary Fund and the Organisation for Economic Co-operation and Development, who last officially updated their numbers in September and November, respectively.

The IMF, which has said it expects to cut its forecasts, had predicted world growth of 4.0 percent in 2012, while the OECD had penciled in 3.4 per cent.

 Some of Greece's most-cherished archaeological sites are to be opened up to advertising firms and other commercial ventures.

In a move bound to leave many Greeks and scholars aghast, Greece's culture ministry said it was taking the measure to help with the upkeep of the debt-stricken country's ancient ruins.

The ministry said the move was 'a common-sense way' of helping 'facilitate' access to the venues. The first site to be opened will be the Acropolis (above).

Archaeologists have for decades slammed such an initiative as sacrilege. But the culture ministry has tried to calm fears by saying that strict conditions will be imposed on anyone wanting to rent the sites.

According to a ministerial briefing dating from the end of December, a commercial firm could rent the Acropolis for a professional photographic shoot for as little as 1,600 euros per day.

Demonstrators could also rent the ancient landmark. Greece needs every euro it can get. The country's public coffers are drained and the nation is struggling to avoid a historic debt default in March.

Greece was bailed out in May 2010 by the European Union and International Monetary Fund and is in the process of nailing down a second rescue, though it is undergoing tough talks with private creditors to reduce its massive debt mountain.

Commercial use of Greece's archaeological sites has until now been the responsibility of the Central Council of Archaeology, which has been very choosy about who gains access.

In recent decades, only a select few people, including Greek-Canadian filmmaker Nia Vardalos and the American director Francis Ford Coppola, have been able to use the Acropolis, while most filming and advertising requests have been refused.

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