The International Monetary Fund — the world's lender of last resort for cash-strapped countries — has until now funded about a third of the cost of the bailouts of Greece, Ireland and Portugal. But while some, including the United States, are arguing that Europe has more than enough money to spend its way out of the crisis, others are pushing for more support as the currency union's debt troubles risk dragging the world economy back into recession.
In recent days, markets have been buoyed by hopes that the 17 countries that use the euro will sort out key aspects of a more aggressive solution to their debt crisis in time for an EU summit Oct. 23 and a Group of 20 meeting in early November.
The cost of any such deal is going to be extremely costly. As well as shoring up Europe's weaker banks, the markets are hoping the euro zone will unveil a strategy that will be enough to stop large economies like Italy and Spain from joining the bailout club.
To do that, the region's bailout fund, the 440 billion euros ($608 billion) European Financial Stability Facility, will soon start buying their bonds on the open market — the hope is that will support their prices and keep a lid on their borrowing costs to allow them to carry on funding themselves in the markets.
But most economists, and a growing number of European officials, believe that the EFSF is way too small to stabilize both countries and recapitalize banks in other cash-strapped countries.
While the euro zone is working on ways to maximize the impact of its limited resources, there is a growing drive to get the IMF to stump up more cash. However, any attempt to get the IMF to play a more hands-on approach, by possibly joining the EFSF in bond market interventions, is likely to meet with some resistance as well as require changes to the IMF's legal framework.
German Finance Minister Wolfgang Schaeuble said an increase in the IMF's resources was not necessary.
"The IMF has enough to fulfill its tasks," he told journalists as he arrived at the meeting. He said help and solidarity from the rest of the world was welcome, but stressed that "the Europeans have to take care of the biggest part of the task."
Schaeuble said he expected EU leaders to take the necessary decisions to tackle the crisis at their summit next week.
"We are on the way to take clear measures to contain the danger of contagion."
US Treasury Secretary Timothy Geithner indicated Friday that he was in favor of maintaining IMF support, but stressed that Europe had enough money to resolve its troubles on its own. He also opposed beefing up the IMF's resources, as might be required if the fund was to take on a more active role.
"The IMF has very, very substantial uncommitted resources because of the actions we took in '09 and 2010," Geithner said in an interview on CNBC. "If Europe has a comprehensive strategy in place that looks like it makes sense and is using the very ample financial resources of Europe, then we're happy to see the IMF play a continuing role, as it's been playing in supporting what the Europeans are doing."
The pressure on Europe to finally get a grip on its debt crisis has ratcheted up in recent weeks amid signs that it's taking its toll on the global economy. Trouble in Europe's banks could have spillover effects all round the financial system, similar to what happened after the collapse of Lehman Brothers in 2008.
"We have lost a million jobs, we have lost on the revenue side and the current events actually create greater uncertainty and lack of confidence, so it is absolutely crucial, that both, as the G20, but certainly as Europe, that we get a higher level of decisiveness in terms of resolving this crisis," South African Finance Minister Pravin Gordhan told The Associated Press Friday.
Gordhan also appeared somewhat more open to a larger role of the IMF in Europe.
"It is about getting ahead of the curve and developing the financial firepower, which would enable Europe to assure the rest of the world that either on its own, through the EFSF, or with the IMF, they are able to actually contain this contagion," he said.
Officials warned not to expect too much of the meeting of G20 finance ministers and central bankers in Paris. The get-together is a stop on the road to a meeting of EU leaders on Oct. 23, when the euro zone is expected to present its new and improved crisis strategy, and a G20 summit of leaders in Cannes in early November.
