IMF could ask UK to raise its expenditure by £19bn

The Conservatives have been taking soundings amongst their own backbenchers over the IMF and think an increased contribution won’t mean a Commons bloodbath. There are also different smoke signals emerging from Labour suggesting they wouldn’t necessarily vote against an increase. Whether or not the government even tries to push it through the Commons is still in the air. George Osborne was in favour of the whole idea when he spoke to journalists at the Cannes G20 summit last year but then went cooler as the anti-eurozone mood darkened on his own backbenches.

But if other big IMF shareholders – including China and Japan, where’s he’s spent the last couple of days – are willing to contribute more then it sounds like he thinks Britain will have to up its contribution too. There’s quite an “if” there – China wasn’t up for this in Cannes. But the IMF has now pressed the button, wants its firepower raised to $1trillion and a process with staging posts at the G20 Finance Ministers meeting next month and the IMF Spring meeting in April is now in train.

Expect some lively coverage in the euro-sceptic press tomorrow. Some Tory MPs are already issuing their hostile reactions. But the chances of this happening are now stronger than they were a month ago…a lot stronger than 2 months ago when David Cameron said this wasn’t on the agenda. Government sources are already lining up their arguments about how no country ever lost money lending it through the IMF and how your IMF assets are a kind of “funny money” that isn’t physically lent from the UK public purse (though it shows up in accounts as a move in official reserves).

Problem is that everyone knows the IMF wouldn’t be asking for the extra firepower if it wasn’t worried about Spain and Italy going bust and potentially needing it desperately. The UK government is saying it will only step up its contribution again if the eurozone is seriously upping its own game and bringing forward its own bail-out European Stability Mechanism and making sure it is closer to its promised strength. If all this goes ahead it has to convince Tory MPs that this is not a bail-out fund but a support fund and safety net for a eurozone bail-out fund doing the heavy lifting. The overall additional exposure for the UK could be around £19bn, higher than it might be on the basis of our usual quota because the US is saying an emphatic “no way, Jose” to the request.

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