The International Monetary Fund (IMF) has nearly $400 billion in their war chest to combat global financial meltdowns and now it appears that amount isn’t close to what the agency will need to stop a financial meltdown throughout the euro zone.
According to the Telegraph the agency believes $2.6 trillion will be needed to avert financial disaster and the agencies head Christine Legarde says:
“The fund’s credibility, and effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” while she added that the fund “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.”
In the meantime not everyone has been impressed with the agencies recent intervention in Europe’s issues, Paul Krugman wrote in the New York Times:
“Without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail.”
Krugman specifically talks about Germany’s inflation-phobia which in turn could bring down Spain and Italy.
If Krugman is correct we could be seeing another 1930-1932 period when “insistence on balancing budgets and preserving the gold standard made the Great Depression even worse in Germany than in the rest of Europe—setting the stage for you-know-what.”
Do you believe the International Monetary Fund can effectively provide Europe with the financial backing and know-how needed to help regain a strong financial footing?