Ouch. The International Monetary Fund can’t be happy (and, rumours have it, are seriously unhappy) with the suggestion and then rapid retraction from the head of its Europe department that it could intervene to buy sovereign bonds – presumably Italian and Spanish – to help the eurozone debt crisis. It would have had to do this via eurozone governments in any case as the IMF can’t intervene directly in markets, which would have been an odd way of going about things.
But a couple of other things Mr Borges said, or were reported as saying, were more interesting:
1. Euros100-Euros200bn is probably enough to recapitalise EU banks. Previously the IMF hadn’t given a number, saying only that the sovereign debt hit to balance sheets by itself was probably €200bn-€300bn – an estimate that got it into all sorts of hot water with the eurozone authorities.
2. Confirming what I have written before – that the IMF isn’t that bothered how big a writedown the banks holding Greek sovereign debt will have to take, as long as the eurozone is there to fill the rest of the financing gap. Of course, as Mr Borges points out, that just means the rescue package will have to be a lot bigger, and people inside the fund (not Mr Borges) have suggested to me it might be double the original estimate of Euros109bn. Better get leveraging that EFSF, then.
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