A Top Euro Banker Calls for Boost to IMF

WSJ: German Official's View at Odds With U.S., Developing Nations

BERLIN—Top European Central Bank official Jörg Asmussen called on the rest of the world to pledge more money to the International Monetary Fund's crisis war chest—a view expected to put Europe at odds with other regions at talks in Washington later this week.

"Now you would expect other IMF shareholders to come forward and make their contributions to increasing IMF resources," Mr. Asmussen said, adding that the decision should be taken at the IMF's spring meeting in Washington next weekend.

Mr. Asmussen, previously Germany's deputy finance minister, became Germany's representative on the ECB's six-person executive board this year and is the bank's point man for international financial diplomacy.

Persuading other parts of the world to put more money in the IMF's war chest, at a time when much of IMF lending is to European countries struggling with their debts, will be a challenge. The U.S. and many emerging economies have so far argued that Europe needs to do more to help itself.

The IMF today has almost $400 billion in available lending capacity, and has been trying to raise money from member countries to boost its lending capacity by $500 billion. But that has proved impossible, and the IMF is now scaling back the target for added lending capacity by more than $100 billion, citing greater stability in financial markets this year.

Without specifying figures, Mr. Asmussen said beefed-up IMF resources would protect countries around the world, not just in the euro zone. He argued that the worst of the euro-zone crisis is over, but that the financial and economic problems facing some countries in the currency bloc are "clearly not over."

The U.S. has already ruled out increasing its contribution to the IMF, preferring to keep pressure on Europe to boost its own defenses. Some major economies, such as Japan and China, have indicated a willingness to put up more funds. Many emerging economies such as Brazil are resisting increasing contributions, amid concerns that the fund risks being overextended in Europe because of its involvement in large, risky bailout programs for Greece and other countries.

Any final agreement on additional IMF resources is unlikely to materialize before a summit of world leaders in June, despite the ECB's call for an early decision.

In a wide-ranging interview, Mr. Asmussen refused to back down from the central bank's insistence that fragile euro-zone members such as Spain and Greece pursue painful fiscal retrenchment, despite mounting concerns that the austerity strategy is pushing those countries ever deeper into recession.

Europe's austerity drive could hurt economic output in the short term, but over a longer period, stronger public finances will boost confidence among households and businesses, spurring new activity, Mr. Asmussen said. "One has to ask: What is the alternative? The suggested alternative of fighting low economic growth with yet more debt is simply an illusion," he said.

Spain is facing growing market concerns over its ability to finance its debts, pushing the yield on Spanish 10-year government bonds toward 6%. That has fueled market speculation that the ECB might have to take action to stabilize bond markets, either by extending further low-interest loans to euro-zone banks, or by reviving its dormant bond-purchasing program.

Renewed ECB buying of government bonds would be controversial in Germany, where it is seen as a dangerous blurring of fiscal and monetary policy. Two of Germany's top officials at the ECB resigned over the issue last year, including Mr. Asmussen's predecessor on the ECB's executive board, Jürgen Stark.

Mr. Asmussen, who is seen by analysts as more pragmatic than his predecessor or than Bundesbank head Jens Weidmann, said the ECB's €1 trillion ($1.31 trillion) in three-year loans for banks since December has been successful in stabilizing markets. He declined to either endorse or reject bond buying. The program "exists. No more, no less," he said.

Mr. Asmussen complained investors and analysts are too quick to look to the ECB for remedies to problems in national economies and government budgets. "The ball is with governments, they have to act," he said.

He suggested markets aren't giving Spain enough credit for the steps it has taken to revamp its economy and get its finances into better shape. "Markets can overshoot," he said.

And Mr. Asmussen insisted Europe is a safe place to invest. A repeat of the contagion that gripped markets in Europe and beyond last fall—when financial panic nearly led to the unraveling of Italy's huge government-debt market—is unlikely, he said. Greece's debt restructuring, which wiped out about half what Greece owed private creditors, won't be repeated in other euro-zone countries, he said. "This should be clear to investors around the globe," he added.

—Sudeep Reddy in Washington contributed to this article.

Write to Brian Blackstone