Europe’s latest tonic could worsen Osborne’s political problems

Seems that the latest plan to fix the eurozone involves cooking up a pot of alphabet soup. Over in Mexico, G20 finance ministers are currently discussing whether to blend two existing eurozone bailout funds, the EFSF and the ESM, with some extra money from the IMF. They hope that this EFSF-ESM-IMF mix will add up to about £1.25 trillion of ready cash for failing eurozone economies. ‘Look at the size of our fund,’ they will then say, as they try to settle nerves across Europe and beyond.

Details are lacking, but some things are already worth noting about this potential mega fund. First is that it seems to be coming about with permission from Germany. They had previously been opposed to organising another whip round, as this could make countries complacent about sorting out their own problems. But now, according to Reuters, that opposition appears to be ‘easing’. There is still a lot of politics to be unwound in Berlin, but, in theory, we could hear an announcement in the next month or so.

And then there’s the involvement of the IMF. The idea is that they will contribute around £300-500 billion once the EFSF and ESM have been merged. This would avoid the sort of situation that we saw last October when eurozone leaders boasted about creating a €1 trillion fund, only to promptly discover that China wasn’t too interested in buying up their debt. The money would be there this time.

It could, of course, also include the UK. George Osborne is insistent this morning that we would only involve ourselves in this fund, via further IMF contributions, once eurozone countries have ‘maximised’ their own involvement. But he’ll also know how tricky this could be for him in the months ahead. America has ruled out further contributions to the IMF completely; we haven’t. If British money does end up in this new fund, then Osborne’s hazy distinction between supporting ‘countries not currencies’ will have been blurred even further — and to the disgruntlement of many Tory backbenchers, among others.