The IMF cannot and should not become the de facto central bank of the euro area

At every G20 and IMF meeting over the last two years, George Osborne has faced the same two challenges – the need for a global plan for jobs and growth that is vital to get deficits down, and putting in place a credible ‘firewall’ in the euro area so that the European Central Bank can stop the crisis spreading.

At every summit so far, George Osborne has ducked these challenges. Maybe this weekend’s G20 and IMF summits will be different. But the signs are not encouraging.

George Osborne is once again preaching austerity as the only solution, even though it is not working in Britain or the euro area. Even the credit rating agencies are warning it is self-defeating and the IMF itself warned on Tuesday of the risks of cutting too much, too quickly. But Britain and the eurozone continue with failed policies that are choking off growth and making it harder to get deficits down.

Nor is there any indication that the European Central Bank will be given the powers and political support it needs to act to stop contagion. Instead, once again, the IMF is being put up to step in and play the role that the European Central Bank should be playing – a strategy which cannot work and is self-defeating by highlighting the lack of a proper ECB firewall. That is why, in the run-up to this summit, the US government has been clear they won’t be part of it.

Labour’s principled position is clear. The IMF has a vital role to play in the global economy and must be properly resourced. But the IMF’s job is to support individual countries with solvency crises, not to support a whole monetary union which cannot agree the necessary steps to maintain itself. The IMF cannot and should not become the de facto central bank of the euro area.

That is why George Osborne was right to say just a few weeks ago that extra resources for the IMF could not even be considered until we saw ‘the colour of the eurozone money’. But since then nothing of substance has changed. There is no political agreement to let the ECB do its proper job as lender of last resort and the eurozone crisis is deepening again.

That is why it is so important that, at this summit, George Osborne finally gets some backbone and starts to lead. Without a plan for jobs and growth, in Britain and Europe, and a proper ECB firewall, the crisis will not be solved. And we will all pay the price in lost investment and jobs.

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Posted April 20th, 2012 by Ed