IMF May Need Billions More

But Paul Krugman's caveat: expansion, not austerity is needed
By Mark Russell,  Newser Staff
Posted Sep 26, 2011 2:59 AM CDT
Updated Sep 26, 2011 4:09 AM CDT
Christine Lagarde, the head of the IMF, says that the Fund could need an even larger war chest in the future to fight growing financial crises.   (Getty Images)

(Newser) – The International Monetary Fund needs to expand its $400 billion war chest to more effectively fight the latest round of euro zone crises, which could demand some $2.6 trillion to solve, reports the Telegraph. “The fund’s credibility, and effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” warns IMF head Christine Legarde in an "action plan," noting that current funding “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders."

But Paul Krugman, for one, is unimpressed with the latest plan to throw huge bailouts to Greece and others, while imposing ever-increasing austerity. "Without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail," writes Krugman in the New York Times. Germany's inflation-phobia in particular is dangerous, threatening to bring down Spain and Italy, he adds. It harkens back to 1930-1932, when "insistence on balancing budgets and preserving the gold standard made the Great Depression even worse in Germany than in the rest of Europe—setting the stage for you-know-what," warns Krugman.

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