FRANKFURT (MNI) – The Bundesbank is prepared to offer additional
bilateral loans of up to E45 billion to the International Monetary Fund,
but only in the context of a broad-based funding boost with fair burden
sharing among IMF member states, Bundesbank President Jens Weidmann said
late Tuesday.

The Bundesbank will make the release of funds dependent on a number
of conditions aimed at ensuring that additional loans would not result
in monetary financing of Eurozone member states via the back door,
Weidmann told reporters at the Club of Frankfurt Economic Journalists.

The German central bank’s position pours cold water on hopes for a
quick boost to the IMF that could help contain the Eurozone debt crisis,
because key IMF members, including the United States, have already
indicated that they will not participate in such an increase of IMF
resources.

“The Bundesbank is ready to release up to E45 billion should there
be a fair burden sharing among IMF member states,” Weidmann said.

“The increase of IMF funds must not be monetary financing via the
back door. To ensure this, it is key that not only Eurozone or European
member states will contribute to the this exercise but that we have a
regular increase of IMF resources,” Weidmann said.

“What is also important to us is…that new resources will go to
the IMF’s general account rather than a special fund, that credit
provisions will remain within the framework of usual IMF programs and
that the regular liability framework is adhered to,” Weidmann said.

Should these conditions not be met, additional Bundesbank loans to
the IMF would be too much like monetary financing and the central bank
would not approve new credit lines, Weidmann said.

The chances of these conditions being met, however, appear slim as
key IMF members have argued that the Eurozone would have to carry most
risks associated with any further bailouts.

Weidmann also pointed to potential risks associated with having the
IMF involved in Eurozone bailouts, given the Fund’s preferred creditor
status.

“If you have a large preferred creditor, that of course means that
the quality of other outstanding loans would be reduced,” he said. This
in turn could mar the attractiveness to investors of bonds issued by the
European Financial Stability Facility (EFSF) to aid distressed Eurozone
countries, he warned.

Weidmann raised questions about the feasabliltiy of and need for
IMF involvement in Italy. “A regular IMF program for Italy is hard to
conceive and it is not necessary either,” he said.

He pointed to the Bank of International Settlements’ latest
quarterly report, which finds that Italy could manage with 7% interest
rates for years to come. “Of course this would be painful, but it is
possible,” he said.

In addition, Weidmann said that Italy should be able to bring down
borrowing costs much quicker since it has a strong industrial base and a
functioning government apparatus. “We must give Italy the chance to
prove that it can implement measures. Italy must deliver now,” Weidmann
said.

–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

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