BRUSSELS (MNI) – EU leaders on Sunday night called for the
International Monetary Fund’s financial resources to be bolstered amid
ongoing discussions about options to boost the Eurozone’s bailout fund,
including the possible use of a special purpose vehicle to entice
investors to buy EMU government bonds — a variant of an idea put
forward by IMF officials.

“All 27 EU countries agreed that we should have a stronger
contribution to the IMF from countries that are in a position to do it,”
European Commission President Jose Manuel Barroso said in a press
conference following the EU summit here Sunday.

“It is a call for the reinforcement of the resources of the IMF. We
believe the IMF has a central role in global financial stability,”
Barroso said.

“It makes sense in times of financial instability that the IMF is
equipped with more resource and in that context, it makes sense that
countries that have external surpluses can make a bigger contribution,”
said Barroso, in a clear reference to Germany.

At a meeting of G20 finance ministers last week, Germany and the UK
were among the EU nations skeptical that the IMF needed more funds, a
position shared by the US, Japan, Saudi Arabia, Australia and Canada.

Until now, China and Brazil have led the calls for the Washington
DC-based institution’s resources to be boosted.

G20 leaders will discuss the issue at their summit in Cannes on
November 3-4.

Herman Van Rompuy, who chairs the meetings of EU and Eurozone
leaders said that Eurozone leaders had “made progress” on two models
that could be used to leverage the E440 billion Eurozone’s bailout fund,
known as the European Financial Stability Facility [EFSF], without
calling on governments to stump up more cash.

“There could even be a combination of the two models,” he said.

Earlier, EU officials confirmed to MNI that the two options under
discussion were a bond insurance scheme to protect investors from first
losses on newly-issued Eurozone government bonds, and a scheme that
would set up a special purpose vehicle, seeded by EFSF cash, to buy
Eurozone government bonds with the participation of other investors.

Antonio Borges, the head of the IMF’s European division said in
Brussels earlier this month that the IMF would be willing to co-invest
in such a fund.

While France has dropped its bid to turn the EFSF into a bank that
could access funds from the European Central Bank, amid fierce
resistance from Germany and the ECB itself, Van Rompuy said that it was
“too much to say” that the ECB is not involved in anything.

Barroso, speaking at the same press conference as Van Rompuy, said
“good progress” had been made on a coordinated plan to recapitalize
European banks and ensure access to liquidity, but he said that more
work needed to be done on backstops to support institutions that need
public support.

Barroso said he expected EU and Eurozone leaders to reach agreement
on a comprehensive debt crisis plan within 72 hours, when another round
of summits is scheduled to take place in Brussels.

The plan should include a “credible mix of public and private
sector involvement” in the restructuring of Greece’s debt, in order to
stamp out the spread of market uncertainty that has pushed up borrowing
costs for many euro area governments, he said.

By Wednesday, Italy’s Prime Minister Silvio Berlusconi must also
“reassure” the EU that his government is committed to the necessary
fiscal and structural reforms, Van Rompuy said, delivering the same
message that France’s President Nicolas Sarkozy and Germany’s chancellor
Angela Merkel delivered to Berlusconi on Sunday.

Italy, the third largest economy to use the euro, has the second
highest debt-to-GDP ratio in the Eurozone after Greece, and along with
Spain, it is on the front line of Europe’s battle to contain its
sovereign debt crisis.

–Brussels Newsroom, +324-952-28374; pkoh@marketnews.com

[TOPICS: M$X$$$,M$Y$$$,MGX$$$,M$$CR$,MT$$$$]