Osborne needs to launder a euro bailout through the IMF

The Chancellor cannot be seen to throw good pounds after bad euros, but nor can he stand by as the s

Given the difficulty the government had last time it tried to get an increase in Britain's contributions to the International Monetary Fund through parliament, George Osborne is unlikely to relish the prospect of repeating the exercise.

The fact that the Chancellor, speaking in Hong Kong, has urged G20 leaders to help boost IMF cash fire power is testimony to how severe the threat posed by continuing crisis in the eurozone is to the global economy. Britain would be prepared to chip in if other countries did too in order "to promote the economic stability from which we all benefit," Osborne said. This follows similar comments in a BBC interview yesterday and to Parliament last week indicating that the government is preparing the ground for a potentially unpopular IMF cash infusion.

The epicentre of instability is, of course, the eurozone, but Osborne cannot make an explicit commitment to bailout Britain's continental neighbours for fear of aggravating eurosceptic Tory backbenchers. Labour has also made it clear that it would oppose a direct transfer of UK money to a dedicated EU bailout fund - even one administered by the IMF. If enough Tories rebelled, a vote in parliament that ended up being framed in terms of whether or not good British pounds should be thrown after bad euros would be very tricky for the government. So any UK assistance to precarious eurozone economies has to be laundered through the general IMF kitty. (In practice that is hardly different from contributing to a specific euro bailout fund and eurosceptic rebels are unlikely to accept the distinction.)

Osborne recognises that economics, trade and geography make it a matter of some urgency for Britain that the IMF is adequately resourced to help potentially insolvent eurozone countries. But Conservative party politics - and the slightly poisoned atmosphere of Britain's diplomatic relationships within the EU - make it hard for him to take any kind of lead in getting the crisis resolved. It might, in any case, be too late.

The round of European sovereign credit downgrades last week had a knock-on effect of damaging the creditworthiness of the European Financial Stability Facility (EFSF) - the vehicle that is meant to administer bail out funds to keep the euro area functioning. There isn't anywhere near enough cash in the EFSF to cover the debts of all of the distressed euro member states, so the idea was always that the fund would trade on the aggregate creditworthiness of contributing countries to raise more capital. If the states funding the EFSF are themselves facing downgrade, the whole thing looks unsustainable.* (Germany is an exception, being a big economy with a solid credit rating, but Berlin is unwilling to evacuate its budget for the collective European cause.)

In other words, the fact that the euro rescue plan was really just a kind of pyramid scheme in which indebted countries promise to bail each other out by borrowing money is being exposed. That is another reason why the IMF will have to get more involved over the next few weeks.

Meanwhile, the draft eurozone-plus treaty, enforcing fiscal discipline and envisaging greater budget coordination between member states, is looking ever more irrelevant to the immediate crisis. It imposes rules to prevent a recurrence of the current situation, ignoring the facts that (a) such rules already existed and were ignored and (b) the current situation is upon us and cannot be cancelled out by wishing the rules had been obeyed more rigorously in the past. The horse has bolted and EU leaders are arguing about what kind of lock to put on the stable door.

*Update: The EFSF has been downgraded by Standard & Poors.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.