With reporting from Steven C. Johnson and Nick Olivari
A lot of time and money is spent on high-profile multilateral gatherings like this weekend’s International Monetary Fund meeting in Washington. The central story this time is the Fund’s effort to raise more funds (no pun intended), which appears to have been successful as G20 nations committed more than $430 billion in new funds.
French Finance Minister François Baroin, speaking to reporters at a press briefing on the sidelines of the IMF meeting, greeted the news with optimism:
Clearly, the reinforcement of the IMF with more than $400 billion in new resources and its effects on confidence will contribute to financial stability in the euro zone.
Except that for investors, the main worry is the continued ability of Spain and Italy to keep funding their debts as borrowing costs rise. The IMF’s new so-called firewall is of little consequence to that immediate chain of events, although it does provide some marginal reassurance.
Robert Tipp, chief investment strategist at Prudential Fixed Income, says:
Having an extra G-20 commitment to the IMF is still a number of steps removed from Spain and Italy being able to meet the markets day in and day out and raise money. So on one hand, these programs being out there are not a part of the real day-to-day financing activities. But you don’t want these countries to be going through the process of trying to raise money without a safety net. So in that sense, this is an important step.