This week the government announced its intention to put through a Statutory Instrument approving £9.4 billion pounds of new capital for the IMF. The draft SI is a very short document, pledging 9.416 billion SDRs. The document does not explain to MPs that one SDR is about the same value as one pound sterling. We are awaiting news of how and when this matter will be considered. The government does have to allow a debate and a vote, though it may opt to do that in committee rather than on the floor of the House.
Doubtless when we get to the debate we will be told that this is contingent capital, that the IMF lends it and expects to get it back. We will be reminded that the UK is obliged to fulfill her international obligations as a full member of the IMF.
I have two main worries with this proposal. The first is I object very strongly to the IMF becoming the cash machine of last resort for the failing Euro. We could easily lose substantial sums through this activity. The IMF has been lending to Euro countries at a little over 5% when the market says they should be paying twice that. Many in the markets think Greece will have to renege on its debts one way or another.
The second is, this is not a good time to ask us for more money. The UK government is rightly fighting the battle of the bulge on its own borrowing habits. Having to borrow more to lend to ailing Euroland economies through the IMF is not helpful to the UK programme of debt and risk reduction in the national accounts.
Loans made to Ireland at around 5% are now worth substantially less if you marked them to market prices- at least a third off. Money lent to Greece at 5% ish is now worth well under half the amount lent, if you wanted to sell the loan on. When governments take on markets they often lose. The danger is governments simply take the risk onto the taxpayers shoulders. The risk does not vanish.
Our approach to demands to contribute under IMF and EU programmes should be different. I am not suggesting that we leave the IMF. I am proposing that we lobby other countries and the management, to get agreement that trying a further bail out for single currency casualties is not a good idea. The IMF was not set up to bail out rich countries that have made a major policy mistake. They should advise any such countries seeking money from them to leave the Euro or take other appropriate action to put right the source of the error. The IMF does not need so much new capital if it avoids future Euro bail outs.
Within the EU our stance should be strong and determined. As a non Euro member we should make no contribution whatsoever to Euro bail outs. That requires renegotiating the Darling pledge – so be it. It would be a very good issue to dig in over. Euroland needs UK support to allow it to integrate as much as it has to. The price for our agreement should be less power over the Uk, and none of our money for the Eurozone.