Reply #5: Geithner looks for a trade-off over IMF

[Demeter]

http://www.ft.com/cms/s/0/d71e688e-0f3d-11de-ba10-0000779fd2ac.html



Not even an understaffed US Treasury is afraid of doubling up its bets. This week, in the face of European scepticism of its demands for global fiscal stimulus, Tim Geithner, US Treasury secretary, upped the stakes by proposing a massive expansion of the International Monetary Fund and sweeping reforms to the global financial architecture.

But at the heart of Washington’s strategy, experts say, lurks an attempted trade-off. The emerging world gets more say over the running of the world economy, and Europe gets more IMF cash to bail out the crisis-hit countries on its eastern periphery. In return, the US is trying to recruit the IMF to its campaign to press the rest of the world – and particularly recalcitrant European finance ministers – to increase fiscal stimulus.

Arvind Subramanian at the Peterson Institute in Washington says: “The US is hoping that the need to help out eastern Europe will overcome the stand-off over fiscal policy.”

The fund has led large loan packages for Ukraine, Hungary and Latvia and has been negotiating with Romania and Turkey. While the EU seems likely to find its own funds to rescue any eurozone country that requires them, it has looked to the IMF to lead the response to crises in states further east. In return the US wants the IMF to act as a global fiscal cop, monitoring whether countries keep to a benchmark of spending 2 per cent of gross domestic product to boost demand...