Eurozone leaders risk reigniting the sovereign debt crisis unless they agree more funds for the so-called "firewall" designed to calm bond markets, the world's top banking group warned last night.
The Institute of International Finance (IIF), which represents 450 banks and finance houses, said the eurozone must expand the €800bn (£660bn) European Stability Mechanism (ESM) created to fund bailouts of member countries.
Such an expansion is the only way to unlock extra money from the International Monetary Fund and finally remove the possibility of a disorderly break-up of the eurozone, the IIF's managing director, Charles Dallara, said in an open letter addressed to IMF and World Bank leaders.
The IMF and World Bank are meeting in Washington next week, and Mr Dallara's letter is designed to put pressure on the finance ministers and central bankers to do more to stabilise the banking system and pull the eurozone out of recession. He also called for core eurozone nations to ease the pressure on peripheral nations such as Greece to slim down government, for fear that an "austerity overload" could doom the continent to a prolonged recession.
The IMF and World Bank meetings are expected to focus on calls for an expansion of the IMF's lending capacity. It wants an extra $600bn in funding from member nations, but the US and others say the Europeans must first do more to limit the risks to the financial system.
Mr Dallara, who negotiated on behalf of private bondholders in talks about the Greek debt restructuring, said it was "disappointing" that eurozone states, led by Germany, had limited the ESM to €800bn, of which €300bn has already been committed.Reuse content