St Petersburg - Russia, holder of the world’s third-largest foreign reserves, gave a vote of no confidence on Monday in Europe’s handling of its debt crisis as the head of the International Monetary Fund (IMF) visited Moscow to seek support.
Prime Minister Vladimir Putin faulted the construction of the eurozone’s bailout fund, the European Financial Stability Facility (EFSF), and reiterated that Russia and other major emerging nations would prefer to channel any aid via the IMF.
Putin said it would have been “right” for the European Central Bank (ECB) to backstop the EFSF, adding that any inflationary risks caused by the resulting monetary creation were justified under current circumstances.
“I know that... many European colleagues think differently - they want strictly to observe the principles of financial discipline and won’t step either to the right or to the left,” he said after hosting regional security talks in St Petersburg.
Separately, Christine Lagarde met President Dmitry Medvedev on her first trip to Moscow as head of the IMF, but no details emerged from their talks.
The eur zone wants to leverage the €440bn EFSF by four or five times to prevent contagion spreading from crisis-hit Greece to Italy, whose borrowing costs are at their highest since 1997 and approaching levels seen as unsustainable.
But the currency union’s largest economy, Germany, has ruled out using the ECB’s balance sheet to pump up the EFSF’s lending power to as much as €1 trillion ($1.4 trillion).
The eurozone has turned to major emerging economies - which together hold trillions of dollars in foreign reserves as a buffer against external shocks - to support the EFSF.
But Moscow has strongly endorsed a joint position reached by the Brics group - Brazil, Russia, India, China and South Africa - at last week’s Group of 20 summit that any aid to the eurozone should go via the IMF.
On Monday, Putin attached no formal conditions, but linked the issue of aid to reforming decision-making at the fund.
“We would expect that, if countries like Russia and China take part in common global efforts, that should be reflected in our status in organizations such as the IMF,” Putin said after the St Petersburg talks, attended by Chinese Premier Wen Jiabao. Lagarde to Moscow
Neither Medvedev nor Lagarde commented after their meeting. In a speech to students, Lagarde urged leaders to redouble their efforts to overcome the eurozone debt crisis and warned that global economic growth was at risk.
“The economy in general is in a dangerous and uncertain phase - there is clearly a darkening outlook and adverse risks,” she said.
Lagarde will stay in Moscow on Tuesday but was not expected to meet Putin, the senior figure in Russia’s ruling"’tandem" who has announced he will run to return to the presidency next year.
Under Putin, who was president from 2000-08, Russia rebuilt its balance sheet after the domestic debt default of 1998. The country holds half a trillion dollars in foreign reserves and its sovereign debt is just 10% of gross domestic product. Systemic problems
Stating Moscow’s position in detail, Foreign Minister Sergei Lavrov said earlier that it made no sense to throw money at the eurozone debt crisis without tackling its root causes.
“It will hardly be possible by simply handing out money to resolve problems that are systemic in character and which affect the financial stability and integrity not only of the eurozone but of the global financial system,” Lavrov said.
“Recent events show that the consequences of the 2008 crisis have not passed and that the work started by the G20 right after the crisis has not been finished.”
Lavrov was referring to efforts to boost the IMF’s lending power initiated at the G20’s London summit in April 2009, as well as giving emerging nations a greater say at the fund.
Russia has said so far that it could commit only up to $10bn to the eurozone through the IMF. G20 finance ministers will meet next month to discuss increasing the IMF’s funding.
“This work needs to be completed - above all concerning the full implementation of agreements that were reached earlier on the deep reform of the International Monetary Fund and the international financial system as a whole,” Lavrov said.