The role of the IMF – interview with Radio 4’s The World at One

Edward Stourton: What’s your objection to the course the government has set on this matter?

Ed Balls: I think that the eurozone countries themselves are abjectly failing to do what is necessary to get growth and jobs moving in the eurozone, to be clear that the problems of Greece are not going to be allowed to spread to Spain and to Italy, and fundamentally the European Central Bank is not playing the role it should playing saying we will stand behind big countries like Italy and they’re not willing to put up the resources, neither are the big eurozone countries. I fully support the IMF and I support an increase in the IMF’s spending, it’s firepower around the world, but the idea that the IMF should directly or indirectly be used to stand in for the proper role of the European Central Bank or the European Financial Stability Facility in the eurozone, that would be a complete betrayal of the IMF’s purposes. It’s not what it’s there for. To be fair to David Cameron and George Osborne they say that’s not what they intend. We will hold them to account for the detail because it mustn’t be allowed to happen.

ES: Well let me just be clear about what you believe. You say in a statement that you released this morning that the European Central Bank is the lender of last resort. Now that traditionally for the world economy has been the IMF. Is it your position, is it Labour’s position that in the future for eurozone countries it should always be the European Central Bank that’s the lender of last resort and therefore no eurozone country could ever borrow money from the IMF?

EB: Well the lender of last resort in Britain is the Bank of England. The lender of last resort in America is the US Federal Reserve and the lender of last resort in the eurozone should be the European Central Bank and as the US Treasury Secretary himself  has said to your economics editor, the ECB has all the firepower it needs. It can provide whatever resources are necessary to stand behind Italy. It’s being prevented from doing so by a failure of leadership in France and Germany to say we can agree to back the ECB and to put the money up. So you end up with this bizarre situation with the French president going to China trying to get money from the Chinese to back the eurozone or going to the IMF. They should be doing it themselves from the European Central Bank. Now Ed there’s an important distinction here. If you have an individual country getting into difficulty like Greece or like Portugal, in those circumstances it makes sense for the IMF to play that role. When you have a wider liquidity confidence problem, the stopping of contagion spreading to Spain and Italy, there is no justification at all for the IMF, for Italy or Spain, supplanting the proper role of the European Central Bank. British taxpayers’ money, American taxpayers’ money should not be going to that.

ES: At the moment the IMF is, as you say, helping individual economies and that’s what it’s designed to do and the purpose of providing greater funds to do that, to be able to do that in a more widespread way, is so that it can help other individual countries. I mean that surely makes sense? It’s difficult to see exactly why it is that you take issue with the government’s decision to support the idea of increasing its resources?

EB: I support an increase in resources for the IMF…

ES: Sorry? I thought you didn’t?

EB: No I do support, I support an increase in resources for the IMF but what I want to do is make sure David Cameron and George Osborne are clear that directly or indirectly this money will not end up supplanting the European Central Bank and putting liquidity in for Spain or Italy. The reason why we voted against an increase in the summer was because we said to the government we are not clear that you’re not going to end up stepping in and doing what the European Central Bank should be doing and we can’t have the IMF effectively becoming the central bank of the eurozone. It’s not for British or American taxpayers to stand behind Italy or Spain.

ES: Ed Balls, thank you very much indeed for talking to us.

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Posted November 4th, 2011 by Ed's team