IMF backs Draghi; says Spain, Italy have done enough

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The International Monetary Fund on Sunday strongly backed the European Central Bank's plan to staunch the eurozone debt crisis with unlimited bond purchases, saying it was ready to get involved in designing and monitoring its implementation.

IMF managing director Christine Lagarde also said large, debt-strapped eurozone countries Spain and Italy had taken enough action to repair their finances to merit aid from the rest of the European currency union.

But, amid pressure on Madrid to request a full European bailout, Lagarde left open the scale of the IMF's possible involvement in ECB head Mario Draghi's plan, which was approved by the central bank's policy making council on Thursday.

Under the Draghi plan, the ECB would stand ready to buy any amounts of sovereign debt with a term of up to three years, thereby ensuring a government's access to funding, in return for a bailout deal with tight strings attached.

"What the central bank has announced last Thursday is a clear indication of the framework in which it would be an active player in restoring the situation in the eurozone," Lagarde told reporters in the Russian port city of Vladivostok after an Asia-Pacific summit.

"Our sense is that now the euro partners know exactly what they have to do. As far as the IMF is concerned, we shall certainly be ready to help and to assist in the design and monitoring of eventual programmes."

Economic headwinds from Europe have slowed growth in the 21 members of the Asia-Pacific Economic Cooperation (APEC), which accounts for over half of world economic output and whose leaders held a two-day summit.

Lagarde backed a new, $158-billion Chinese infrastructure spending offensive, saying it was important that countries running external surpluses make their contribution to supporting global growth.

A possible aggravation of the euro crisis, failure by the United States to resolve the so-called 'fiscal cliff' and the vulnerability of emerging market economies posed the three main risks to the world economy, she added.

TRUST BUT VERIFY

The exact scale and nature of the IMF's involvement in the ECB's bond-buying plan - including whether it might deploy its balance sheet - is not yet clear.

But Lagarde showed sympathy with southern Europe as it struggles to escape a debt trap, and little understanding for concerns in Germany, Europe's largest economy, that bond buying would debase the euro and drive up inflation.

The former French finance minister noted that Spain and Italy had already taken 'strong measures' and their fiscal and reform trajectories were 'adequate in and of themselves'.

"It's a country's decision, in relationship with its member state partners and the institutions of the eurozone, to decide what is best for itself and for the group to which it belongs," Lagarde told reporters.

"The IMF is there to help and support and will cooperate in the design of any such set of policies."

Lagarde's comments reprised a strong initial statement of support for the Draghi plan and offered some clues on how the IMF might get involved.

"The ECB said itself that it welcomed highly the involvement of the IMF. We are keen to help," Lagarde said.

"Clearly, when we get involved, we want to be involved both in the design and the monitoring of programmes. We don't particularly like to do monitoring without having participated actively in the design."

Any substantial financial commitment on the part of the IMF would require the full conditionality of an official lending programme of the type that has kept the weakest of the eurozone states, Greece, afloat.

But Lagarde left some wiggle room when asked whether the IMF would be prepared to deploy its balance sheet as part of the Draghi plan.

She cited the monitoring and policy mix components of IMF engagement with some low-income countries.

"If the demand was for a relatively low degree of involvement ... we would certainly like to be involved in the design if we were to be involved in the monitoring," she said.

"And if it was a financial programme we obviously have to do it under our normal framework, which implies conditionalities and adequate financing."