Christine Lagarde has softened her stance on the amount of capital needed by European banks, as finance ministers and central bankers from the leading advanced economies sought to calm febrile markets at the weekend.
Ms Lagarde, IMF managing director, confirmed that the Fund was revising its estimates of the loss of tangible equity in European banks on Saturday, saying the estimated capital losses of €200bn were “tentative” and the Fund was “in discussions with our European partners to assess the global methodology” until the final estimates are published in a Fund paper released shortly before its annual meetings in a fortnight.
A senior US official said the IMF had moved towards the European position.
But while the IMF and Europe resolved some of their differences, G7 ministers faced with diverse reasons for stalled growth agreed to implement different strategies in each country rather than a co-ordinated plan of action.
In an agreed text, issued for fear that they would appear complacent if nothing was said, the Group of Seven signed up to statements they had issued many times before.
Ministers pledged to stand behind their financial systems, taking “all necessary actions to ensure the resilience of banking systems and financial markets”, to enact “growth enhancing fiscal consolidation” and they repeated their call for “a concerted effort at global level in support of strong, sustainable and balanced growth”.
Officials from many G7 countries stressed that this was the first of many international meetings this Autumn and they were deeply concerned at market events and the lack of confidence in the eurozone.
Speaking after the meeting, Tim Geithner, U.S. Treasury secretary said: “European officials fully understand the gravity of the situation … The G7, alongside the IMF, is committed to working with them to decisively address the crisis in Europe”.
A senior U.S. official said that Europeans recognised they were responsible for three-quarters of the dark things happening in the world.
On a more positive note, he added that the IMF and Europe had resolved some of their differences, with the Fund revising down its earlier estimates, which had so angered European ministers.
Even though the G7 came away from its discussions on growth in Marseilles without a public dispute, the discussions had been sober and a febrile atmosphere infused the talks as markets sank and the participants digested the news of the latest crisis to hit the European Central Bank.
Mr Geithner said the rest of the G7 supported the U.S. administration’s proposals for tax cuts and additional spending measures to boost jobs would help and he was supported by George Osborne, UK chancellor, so long as the U.K. and others did not have to follow suit.
Instead Mr Osborne wanted to highlight the support he claimed to have received from other finance ministers. “The strong feeling from today’s talks has been support for credible fiscal consolidation plans for countries with high budget deficits like the one we have in Britain,” he said.
But other G7 members, including Germany, took a harder line and objected to the idea of more stimulus on the grounds that it conflicted with earlier international agreements to reduce budget deficits rapidly across the G7 and G20 – particularly a commitment from 2010 to halve deficits by 2013.
Wolfgang Schäuble, German finance minister, said: “We said that too high deficits are a main problem ... therefore the course of deficit consolidation has to be continued.”
European officials noted that the disputes between Germany and the US over the necessary fiscal actions to stem the crisis remained heated, but tension was diffused in agreeing to differ.
After the meeting François Baroin, French finance minister, said: “We have to get away from the idea there is only one solution for all ... it’s not rigour versus growth.”
Separately, the G7 finance ministers announced on Saturday that they had increase the value of loans pledged to the Arab Spring countries of Egypt, Tunisia, Morocco and Jordan to $38bn from $20bn agreed in the summer. Ministers expressed hopes that loans could soon be extended to Libya, where the National Transitional Council was officially recognised by the IMF on Saturday.
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