Having exhorted the eurozone to come together and create momentum towards fixing its structural-deficit problems, talk of maintaining the EFSF alongside its successor, the ESM, seems to have been enough of a display of good intent by euro members for the UK Chancellor to publicly consider his next move, dipping into the UK wallet for a GBP 10bln loan to the IMF.
However there are four conditions attached to his largesse and two not insignificant hurdles to overcome before any concrete pledge is made. The stipulations are: that there will be conditions attached to any IMF lending (not exactly unusual but still vague); that the UK will not contribute unilaterally – other G20 nations must participate (Lagarde has been in Davos with her oversized begging bowl); that there will be no unique vehicles set up purely for the benefit of the eurozone and, in the same vein, any new funds must not be used as a substitute for eurozone self-funding.
As well as conditions there are hurdles - major and a minor. Merkel has demanded that eurozone nations sign-up to the ‘fiscal compact’ before agreeing to the simultaneous operation of the EFSF and ESM. Her own CDU party however is adamantly opposed to the proposal due to the EUR 211bln cost. Osborne’s willingness to contribute may well diminish if Merkel is unable to deliver the increased firewall that would be created by a twin-track EFSF/EMS strategy. Without that green light the conditional premise for UK participation falls apart.
To add to Osborne’s difficulties, the Eurosceptics in his own Conservative party are banging their war drums, arguing – as is Germany – for greater material progress by eurozone members but also pinning much of the responsibility on Germany itself.
Despite Osborne putting his money where his mouth is, it is likely, as usual, to be Merkel who decides the next step.