A partner in Europe

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. We work both independently and, in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF's work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the sovereign debt crisis in the euro area. As IMF Managing Director Christine Lagarde has stressed, to get beyond the crisis, Europe must address three key issues—lack of growth, reduced competitiveness, and the need for greater integration. To restore confidence more immediately, the euro zone must develop a strong firewall to protect its members. Read our Factsheet on Europe and visit our webpage that pulls together IMF information about Europe. See also article on fixing the flaws in EMU.

Reinforcing multilateralism

The crisis highlighted the tremendous benefits from international cooperation. Without the cooperation spearheaded by the Group of Twenty industrialized and emerging market economies (G-20) the crisis could have been much worse. At their 2009 Pittsburgh Summit G-20 countries pledged to adopt policies that would ensure a lasting recovery and a brighter economic future, launching the "Framework for Strong, Sustainable, and Balanced Growth."

The backbone of this framework is a multilateral process, where G-20 countries together set out objectives and the policies needed to get there. And, most importantly, they undertake to check on their progress toward meeting those shared objectives—done through the G-20 Mutual Assessment Process or MAP. At the request of the G-20, the IMF provides the technical analysis needed to evaluate how members’ policies fit together—and whether, collectively, they can achieve the G-20’s goals.

The IMF’s Executive Board has also been considering a range of options to enhance multilateral, bilateral, and financial surveillance, and to better integrate the three. It has launched “spillover reports” for the five most systemic economies—China, the Euro Area, Japan, United Kingdom, and the United States—to assess the impact of policies by one country or area on the rest of the world.

Rethinking macroeconomic principles

The severity of the crisis—immense hardship and suffering around the world—and the desire to avoid a repeat also raised some profound questions about the pre-crisis consensus on macroeconomic policies. In this context, the IMF is encouraging a wholesale re-examination of macroeconomic policy principles in the wake of the global economic crisis.

In March 2011, the IMF hosted a high profile conference to take stock of these policy questions and promote a discussion about the future of macroeconomic policy. The agenda focused on six key areas: monetary policy; fiscal policy; financial intermediation and regulation; capital account management; growth strategies; and the international monetary system (discussed further below).

A key goal of the conference was to promote a broad-based and ongoing dialogue that extends beyond the corridors of the IMF. To this end, the conference was webcast and the conference co-hosts opened an online discussion with posts on the IMF blog, iMFdirect.

Stepping up crisis lending

As part of its efforts to support countries during the global economic crisis, the IMF has beefed up its lending capacity. It has approved a major overhaul of how it lends money by offering higher amounts and tailoring loan terms to countries’ varying strengths and circumstances. More recently, further reforms have been approved that strengthen the IMF’s capacity to prevent crises. In particular:

• Doubling of lending access limits for member countries and streamlining procedures to reduce perceived stigma attached to borrowing from the Fund
• Introducing and refining a Flexible Credit Line (FCL) for countries with robust policy frameworks and a strong track record in economic performance; and introducing a new Precautionary Credit Line (PCL) for countries that have sound economic policies and fundamentals, but are still facing vulnerabilities
• Modernizing conditionality to ensure that conditions linked to IMF loan disbursements are focused and adequately tailored to the varying strengths of members’ policies
• Focusing more on social spending and more concessional terms for low-income countries

The IMF has committed more than $280 billion to countries hit by the crisis—including Greece, Ireland, Portugal, Romania, and Ukraine—and has extended credit to Mexico, Poland, and Colombia under a new flexible credit line. The IMF is also stepping up its lending to low-income countries to help prevent the crisis undermining recent economic gains and keep poverty reduction efforts on track.

Strengthening the international monetary system

The current International Monetary System—the set of internationally agreed rules, conventions, and supporting institutions that facilitate international trade and cross-border investment, and the flow of capital among countries—has certainly delivered a lot. But it has a number of well-known weaknesses, including the lack of an automatic and orderly mechanism for resolving the buildup of real and financial imbalances; volatile capital flows and exchange rates that can have deleterious economic effects; and related to the above, the rapid, unabated accumulation of international reserves, concentrated on a narrow supply.

Addressing these problems is crucial to achieving the global public good of economic and financial stability, by ensuring an orderly rebalancing of demand growth, which is essential for a sustained and strong global recovery, and reducing systemic risk. The IMF’s recent review of its mandate and resultant reforms—to surveillance and its lending toolkit—go some way towards addressing these concerns but further reforms are being pursued.

Supporting low-income countries

The IMF has upgraded its support for low-income countries, reflecting the changing nature of economic conditions in these countries and their increased vulnerabilities due to the effects of the global economic crisis. It has overhauled its lending instruments, especially to address more directly countries' needs for short-term and emergency support. The IMF support package includes:

• Mobilizing additional resources, including from sales of an agreed amount of IMF gold, to boost the IMF’s concessional lending capacity to up to $17 billion through 2014, including up to $8 billion in the first two years. This exceeds the call by the Group of Twenty for $6 billion in new lending over two to three years.
• Providing interest relief, with zero payments on outstanding IMF concessional loans through end-2011 to help low-income countries cope with the crisis.
• Establishing a new set of financial instruments, detailed here.