ECB sufficient to deal debt crisis: IMF

WASHINGTON: IMF official on Sunday said the European Central Bank was the only player powerful enough to "scare" financial markets and keep the euro zone's debt crisis from further damaging the global economy.

Ahead of a high-stakes meeting on Sunday afternoon between IMF chief Christine Lagarde and the finance minister of Greece where the crisis is now centred officials were wrestling with how to bolster Europe's banking system and keep the crisis contained.

The IMF said the European Union's bailout fund could not go it alone.

"It is very important that we see a combination of the ECB and the EFSF," said Antonio Borges, the head of the IMF's European department, referring to the European Financial Stability Facility of 440 billion euros ($594 billion).

"The ECB is the only agent that can really scare the markets," he added a vital consideration because investors are increasingly sceptical Greece can avoid a default and policymakers can prevent the crisis rolling to other nations.

Analysts say the bailout fund would be far small if the crisis were to spread beyond Greece, Portugal and Ireland to hit the much larger economies of Italy and Spain.

Germany stands opposed to chipping in more to help nations it sees as profligate and the focus has now turned on ways to leverage existing bailout funds, possibly through the ECB.

The European Union's top economic official, Olli Rehn, said on Saturday that as soon as the region's governments confirm new powers for the EFSF, attention will turn to how to get more impact from the existing money.

"We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet," another senior European official said.

The rescue fund would need to be at least 2 trillion euros to safeguard Italy and Spain if the crisis spread, analysts estimate.

Throughout a weekend of IMF and World Bank meetings in Washington, European officials have been under pressure to get a grip on the debt crisis before it spirals out of control.

While signs have mounted that Europe was preparing to step up its crisis response, there were still doubts that officials were moving swiftly enough.

"There is some risk of market disappointment due to the fact there were no further, more specific pledges from the euro countries at this time," Swedish Finance Minister Anders Borg told reporters.

"It is clear they want to build a firewall (but) it will take time before we see the decisions necessary in place."

US Treasury Secretary Timothy Geithner pushed the ECB on Saturday to take on a pivotal role in fighting the crisis. "The threat of cascading default, bank runs, and catastrophic risk must be taken off the table," he told the steering committee of the 187-nation IMF.

In a measure of the global concern about the potential for renewed recession, Brazil's central bank chief also appealed for a better coordinated and stronger European approach.

"Brazil's experience with past crises suggests you have to confront the problems in a fast, consistent manner," said Alexandre Tombini.

"The longer it takes, the higher the cost, the more contagion spreads. You have to act with overwhelming force."

Copyright Reuters, 2011