Washington: Europe came under fresh pressure on Sunday to ramp up its response to the euro zone debt crisis with the IMF saying the European Central Bank is the only player big enough to "scare" financial markets.
Germany and many top officials within the ECB itself are wary about the central bank being drawn more deeply into supporting Greece and other debt-stricken states.
But after world stock markets plunged on fears the crisis could spread to other nations and deliver a big blow to the global economy, European policymakers faced enormous pressure to come up with a bolder rescue plan.
"The ECB is the only agent that can really scare the markets," said Antonio Borges, the head of the IMF's European department at a gathering of top economic policymakers from around the world.
IMF chief Christine Lagarde was due to meet the finance minister of Greece -- where the crisis is now centered -- on Sunday afternoon, as officials wrestled with how to bolster Europe's banking system and keep the crisis contained.
The European Union and IMF have already bailed out Greece, Portugal and Ireland, and officials want to stop the crisis from spreading to Italy, Spain and possibly beyond.
Borges said it was essential to combine the ECB's potential crisis-fighting power with Europe's 440 billion euro ($594 billion) bailout fund to deliver the necessary force to quell the crisis.
However, a number of ECB officials have voiced reluctance.
"It is not helpful that we have an avalanche of new proposals every week," ECB Governing Council member Ewald Nowotny said.
Markets fear that European banks could be dragged down by their exposure to Greece and other debt-strapped euro zone nations, and analysts say a bailout fund of around 2 trillion euros would be needed if the crisis spread to Italy and Spain.
Germany opposes chipping in more to help countries it sees as profligate and the focus has now turned to ways to leverage the existing bailout fund, possibly through the ECB.
The European Union's top economic official, Olli Rehn, said on Saturday that as soon as the region's governments confirm new powers for the fund -- the European Financial Stability Facility -- attention would turn to how to get more impact from the existing money.
"We need to find a mechanism where we can turn one euro in the EFSF into five, but there is no decision on how we could do that yet," another senior European official said.
Klaus Regling, who heads the bailout program, said officials were thinking about how to leverage the fund's resources to get more value out of them, but he said that did not necessarily need to involve the ECB.
One top ECB official said Europe might follow the lead of the United States, which rewrote its financial rule book during the 2007-2009 credit crisis.
ECB executive board member Lorenzo Bini Smaghi said there could be a European equivalent of the U.S. TARP program, which helped shore up the shaky banking system, or the TALF, which provided some liquidity to parched U.S. credit markets.
"I think both scenarios can be followed.... I think that these two options could solve the problem," he said.
While signs have mounted through the weekend that Europe was prepared to step up its crisis response, there were still doubts officials were moving swiftly enough.
"There is some risk of market disappointment due to the fact there were no further, more specific pledges from the euro countries," Swedish Finance Minister Anders Borg told reporters.
"It is clear they want to build a firewall (but) it will take time before we see the decisions necessary in place."
U.S. Treasury Secretary Timothy Geithner pushed the ECB on Saturday to take on a pivotal role in fighting the crisis. "The threat of cascading default, bank runs, and catastrophic risk must be taken off the table," he said.
In a measure of the global concern about the potential for renewed recession, Brazil's central bank chief also appealed for a better coordinated and stronger European approach.
"Brazil's experience with past crises suggests you have to confront the problems in a fast, consistent manner," said Alexandre Tombini. "The longer it takes, the higher the cost, the more contagion spreads."
"You have to act with overwhelming force," he said.
First Published: Monday, September 26, 2011, 09:01