How much will EUR bailout cost you?
Each household in the country will be contributing nearly £5,000 if Britain had to stump up £115billion for euro bailouts. There are fears the International Monetary Fund's (IMF) £250billion war chest are horribly insufficient to save countries.A fund of around £2.6trillion is the new target according to sources in Washington. Christine Lagarde, IMF managing director, said £250billion ‘pales in comparison with the potential financing needs of vulnerable countries’ and needs to be expanded to deal with ‘worst-case scenarios’.Her warning came as U.S. President Barack Obama said the debt crisis in Europe is ‘scaring the world’ and that eurozone leaders were not dealing with the issue quickly enough.And a top Bank of England economist urged leaders around the world to stop the world plunging back into recession.‘It’s doing something rather than just saying something that counts,’ said Ben Broadbent, a member of the Bank of England’s Monetary Policy Committee charged with setting UK interest rates.Britainis liable for 4.5 per cent of IMF funding – meaning it would have to contribute around £115 billion to an enlarged bailout fund, or £4,600 per household.It is conceivable that figure may turn out to be slightly lower because Britain’s share is falling as rapidly growing economies such as China contribute more. Britain has already handed over £12.5billion in emergency loans to Greece,Ireland and Portugal to help prop up the euro.Chancellor George Osborne has refused to make more British money available to rescue the single currency but would find it difficult to resist a call from the IMF.The IMF raises money from its members and steps in to support debt-ridden countries such as Greece and Ireland with emergency loans.Following crisis talks in Washington at the weekend, Mrs Lagarde said: ‘The Fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios. Our lending capacity looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders. It will be useful to discuss, soon, the needs and contingency options.’Plans are already in place to increase the size of the rescue pot to nearly £650billion.Her predecessor Dominique Strauss-Kahn, who was forced to quit after he was arrested on rape charges which were later dropped, hoped to increase the war chest to as much as double that amount.It is understood that Mrs Lagarde wants to go further. A source in Washington said: ‘This is for the long term. There needs to be a serious discussion about the scale of the fund.’The eurozone crisis has shown it is no longer just small developing countries at risk of drowning under a sea of debt.Jennifer McKeown, a senior European economist at Capital Economics, said an enlarged war chest of between £1.3trillion and £2.6trillion ‘looks sensible because there are a lot of other countries around the world that might need help’.It is feared that a Greek default will wreak havoc across the eurozone, with banks suffering punishing losses and larger countries such as Italy and Spain being dragged down.The crisis threatens to eclipse the collapse of U.S.investment bank Lehman Brothers three years ago when banks dragged the world into recession. Edward Meir, a senior analyst at brokers MF Global, said: ‘These are very critical days, reminiscent of the touch-and-go situation we were in back in 2008.‘The key difference this time around is that it is countries and not companies that are in danger of going bust.’Mr Obama told a public meeting in San Francisco that the debt crisis in Europe was one of the principal reasons why the U.S.economy was faltering.‘European nations are going through a financial crisis that is scaring the world and they are trying to take responsible actions but those actions haven’t been quite as quick as they need to be,’ he told supporters at a town meeting. Mr Obama has seen his approval ratings hit by rising unemployment and fears the U.S.could slide into another recession.