Germany open to boosting IMF funds to fight crisis

BRUSSELS (Reuters) - Germany is open to extending the resources of the International Monetary Fund via bilateral loans or increased special drawing rights, Finance Minister Wolfgang Schaeuble said on Wednesday, in an apparent shift of Berlin's position on how to deal with the debt crisis.

At the G20 summit in Cannes on November 3-4, Germany opposed any boost to the IMF's resources via special drawing rights, a reserve asset based on a basket of currencies, saying only the Bundesbank could take such a decision.

But after discussing the issue of IMF resources with EU finance ministers on Tuesday and Wednesday, Schaeuble said Germany could back such a move either via new bilateral loans or SDRs, as long as the Bundesbank was in agreement.

Euro zone governments are trying to find ways to bolster their ability to tackle the sovereign debt crisis, including the creation of a safety net big enough to help vulnerable states such as Italy and Spain.

"We are prepared to increase the resources of the IMF through bilateral loans," Schaeuble told reporters, emphasising that it was ultimately up to the central bank.

"If the IMF wants to widen its freedom to take action by increasing the special drawing rights, then we are prepared to talk about it. But, to be clear, this is about IMF instruments."

One proposal is for the 17 national central banks to lend money to the IMF so that it can on-lend it to euro zone countries that need it, with IMF conditionality applying.

Such a method would side-step the European Central Bank, whose mandate does not allow it to finance euro zone countries' deficits directly or act as a lender of last resort.

"Naturally, the details would have to be discussed," Schaeuble said, adding that it would be a matter for the 17 central banks in the euro area to address. "Bilateral loans are possible in principle."

After the G20 summit, the German government had been at pains to explain why Chancellor Angela Merkel had opposed using SDRs to boost IMF resources.

"In the German view, according to our law, the Bundesbank controls (the SDRs), its independence is well known, and the chancellor made it quite clear that she could not back any such agreement," her spokesman said at the time.

Garry Schinasi, a former IMF official, who now advises central banks and governments said the move would allow euro zone countries to boost the IMF so that it can indirectly lend on their money to struggling states.

"The reason this probably makes a lot of sense for European governments to do this is because they don't have ability to supervise countries in the way that the IMF does," he said.

"A bigger role for the IMF is necessary. Italy would feel that it's not Germany monitoring its performance, it's the IMF."

(Reporting By John O'Donnell; Editing by Luke Baker and Toby Chopra)