IMF Should Take the Lead in Resolving Euro Crisis, Rajan Says

The International Monetary Fund must start “taking the lead” in resolving the euro-area debt crisis as the turmoil threatens Italy and Spain, Raghuram Rajan, former IMF chief economist, wrote in the Financial Times.

“The world has to recognize that the euro zone’s problems are now too big for the euro zone alone to deal with,” Rajan, a professor at the University of Chicago’s Booth School of Business, said in an article published in the newspaper today.

Greek debt will “surely” have to be revamped and “funding structures” for Spain and Italy must be put in place before this happens, Rajan said. He recommends the IMF set up a special vehicle to offer lines of credit to illiquid nations. It could be initially capitalized from the European Financial Stability Facility and then from the IMF’s own capital, he said. It could also have the power to borrow from other countries.

“The IMF should start taking the lead in managing the crisis rather than playing second fiddle,” Rajan wrote in the article. “The euro zone should suppress any wounded pride and not only acknowledge that it needs help, but also provide quickly what it has already promised.”

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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