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EU Finance Ministers Conference Call: Leaders To Discuss IMF Loan

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BRUSSELS — European Union finance ministers have come up euro50 billion ($65.19 billion) short of their goal of providing the International Monetary Fund with euro200 billion ($260.78 billion) to help heavily indebted nations avoid default

The eurozone will provide an extra euro150 billion to the IMF through bilateral loans, Jean-Claude Juncker, the prime minister of Luxembourg, who also chairs the meetings of the currency union's finance ministers, said in a statement Monday.

Greece, Ireland and Portugal, which have received multibillion euro bailouts, won't have to contribute to the IMF loans.

Of the non-euro countries, only Denmark, Poland, the Czech Republic and Sweden will also send extra money to the Washington-based fund, Juncker said, without giving specific amounts. Poland had previously said it would provide around euro6 billion, while Denmark has promised euro5.4 billion – underlining that the euro200 billion target will be missed.

The IMF welcomed the money late Monday. "We welcome the EU Finance Ministers' support for a substantial increase in the IMF's resources, as we work to strengthen our capacity to fulfill our systemic responsibilities to our global membership," a spokesperson said in a statement.

The failure to come up with the full amount that had been indicated at a summit of EU leaders just 10 days ago signals further rifts within the 27-country EU. At the summit, the 17 eurozone countries also agreed to set up a new treaty to create tighter fiscal rules for the currency union, which has been rocked by a debt crisis for the past two years.

The new accord was made necessary after the United Kingdom blocked changes to the existing EU Treaty. Britain, the largest economy among the 10 non-euro countries in the EU, also declined to contribute to the euro200 billion IMF loan target. Its share would have amounted to some euro30 billion.

Instead, London signaled that it may provide more resources to the IMF through the Group of 20 framework, which most likely wouldn't be earmarked for the eurozone. "The U.K. has always been willing to consider further resources for the IMF, but for its global role and as part of a global agreement," the office of U.K. treasury chief George Osborne said in a statement.

The extra IMF loans are meant to be channeled into a special fund that will invest alongside the eurozone's own bailout fund – the European Financial Stability Facility. The eurozone hopes that its own loans, which will come via national central banks, will encourage other non-European countries to also support Europe via the IMF.

The eurozone is desperate for outside investors, because the euro440 billion EFSF is seen as way too small to save large economies like Italy and Spain. The EFSF has already committed some euro40 billion to Ireland and Portugal and may have to take on more than euro100 billion for a second bailout for Greece.

At the same time, the fund's ability to raise rescue money cheaply on financial markets is threatened by potential downgrades for several eurozone states that guarantee its lending.

Rating agency Standard & Poor's earlier this month put 15 eurozone countries, as well as the EFSF, on watch for a downgrade, citing the escalating debt crisis.

France, the second-largest contributor to the EFSF and currently one of six eurozone states with an AAA rating, is considered to be at particularly high risk of seeing its creditworthiness cut.

But the President of the European Central Bank Mario Draghi warned Monday that "it's likely that if France loses its rating, then other countries' ratings would be changed" as well.

The ECB, which is supposed to help the EFSF in future bond market interventions, is "working actively on all possible scenarios" involving a downgrade of eurozone countries, Draghi said.

He added that the decision by EU leaders at their summit 10 days ago to let the EFSF's successor, the euro500 billion European Stability Mechanism, come into force already in July – one year ahead of schedule – was the best response to the downgrade threat.

In contrast to the EFSF, the ESM has paid-in capital, similar to a bank, which makes it less vulnerable to downgrades of its contributing states.

While Draghi applauded the outcome of the EU summit at his appearance in front of lawmakers of the European Parliament, he also warned that Europe risks falling back into recession as the crisis escalates.

He also dampened hopes that the central bank would help struggling countries with their debt troubles, stressing that the ECB would continue to support banks' lending to businesses in an effort to prevent another sharp credit crunch.


Sylvia Hui in London contributed to this report.

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