The size of the International Monetary Fund's emergency fund to rescue bankrupt economies will rise to $456bn, thanks to a $43bn pledge from China at the G20 summit in Los Cabos, Mexico, this week.
China and the rest of the so-called Brics group of nations – which include Russia, Brazil, India and South Africa – will also contribute $10bn each to the multi-lateral institution's regular coffers. In return for these pledges, the Brics are demanding more voting rights on the IMF's governing board.
The managing director, Christine Lagarde, said yesterday that the additional funds were not specifically earmarked for assistance for any part of the world. "These resources are being made available for crisis prevention and resolution and to meet the potential financing needs of all IMF members," she said. "They will be drawn only if they are needed as a second line of defence." But it is well-known that the drive to bolster the IMF's emergency resources has been prompted by fears about the threat the eurozone crisis poses to the global economy.
That danger was underlined again yesterday as Spain was forced to pay the highest price since the birth of the euro, back in 1999, to raise funds for 12 and 18 months as the government tapped investors for €3bn (£2.4bn). While Madrid's benchmark 10-year debt costs edged down slightly, Spain paid an average 5.07 per cent to raise money for 12 months – significantly higher than the 2.99 per cent paid at a similar auction a month earlier.
The unsustainable borrowing costs add to fears that Mariano Rajoy's beleaguered centre-right government will soon have to seek a full-blown international bailout after seeking €100bn to prop up its struggling banks.
"It now appears virtually inevitable that Spain will require a sovereign bailout," said Jonathan Loynes of Capital Economics.
The auction came amid signs even Germany is being dragged down by the crisis. Investor confidence is falling at its fastest rate since October 1998.