On November 22nd, the International Monetary Fund (IMF) expanded its credit lines, allowing a government to borrow a maximum of five times its quota over six months and 10 times its quota in the second year of a two-year loan.
Last week, the German Finance minister stated Germany is willing to give more resources to the IMF and also through bilateral loans. He also indicated the IMF could issue bilateral loans to weakened countries.
I would suggest that it is possible that Germany and other European countries will increase their resources to the IMF. The IMF is likely to divert these funds into a "Trust" (Termed by Sarkozy as the European Monetary Fund) that will be accessed by European Countries in need of funding should the market prove too expensive. This will be a backstop that may never be used. Because they will be diverted into a trust it means that only European, or other BRIC and non-BRIC Central Banks that want to contribute, will "be on the hook." This will allow the IMF to offer these monies regardless of any U.S. disinterest in being involved, as the monies will not be coming from the regular IMF fund.
There were reports two weeks ago in Italy’s La Stampa that the IMF would deploy a 600 Bio EUR loan to Italy in order to ring-fence Italy from the crisis. The story was discounted because it was obvious that the IMF did not have the necessary firepower.
Now Germany has to overcome some large hurdles in order to (1) offer up its resources to the IMF and (2) have the IMF see Germany’s resources as being able to lend to another European country. However if Merkel is able to convince European governments that its resources can be pooled and then used by the IMF to help any European government in trouble - a move toward "Fiscal Union" and "Political Union" - then the odds of this happening increase.
Also last weekend, there was talk in the German Newspaper Welt an Sonntag that both Germany and France are working on a "fast-track" enaction of a treaty change, mirrored on the "Schengen Agreement" that regulated cross-border travel. This would only require around nine eurozone members to be in agreement for a treaty change to occur.
Italy’s Monti said last week that Sarkozy and Merkel will make important announcements about European politics in the coming days. To conclude, it is possible that European countries may be planning on pooling their contributions to the IMF, into a European Monetary Fund, allowing the IMF to lend those resources with the pre-announced leverage to countries like Italy and Spain. We will see by December 9th whether this is the case.