“We need a larger firewall.” So declared Christine Lagarde (photo), Managing Director of the International Monetary Fund (IMF) during a speech in Berlin on January 23, 2012, in which she called on taxpayers of the world to chip in $1 trillion to the IMF to stave off a global crisis. “We need to act quickly or else we could easily slide into a 1930s moment,” Lagarde warned, in an obvious reference to the Great Depression.
Suddenly, talk of “firewalls” was everywhere. Australian Treasurer Wayne Swan backed Ms. Lagarde, saying that without “larger firewalls” to protect embattled European nations the global economy was at risk. On January 27, U.S. Treasury Secretary Timothy Geithner, speaking at the annual billionaire confab known as the World Economic Forum, in Davos, Switzerland, said that “building a stronger, more credible firewall,” is key to resolving the euro-zone sovereign debt crisis.
But the IMF is not the only institution calling for expensive new fire protection. On January 30 CNN reported that European leaders meeting in Brussels had just concluded an agreement “to strengthen a financial firewall and most members of the 27-nation group will sign a new fiscal compact.” The centerpiece of that pact is €500 billion ($650 billion) to implement the European Stability Mechanism, or ESM, for bailing out Greece, Spain, Portugal, Italy and other troubled European economies.
European Council president Herman Van Rompuy declared: "The early entry into force of this permanent firewall will prevent contagion in the euro area and further restore confidence."
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