IMF cannot afford to bail out the rest of Southern Europe

Can the International Monetary Fund afford it if the rest of Europe’s ring of fire (Portugal, Spain and Italy, in descending order of crisis) starts to crumble? My back-of-an-envelope calculations don’t look good.

Here’s the logic. The IMF currently determines how much it can lend to a country based on the “quota” that country provides towards the IMF’s own funding. The quota is usually more or less proportional to the size of that country’s economy, though the quotas haven’t been updated for a while so are a little out of date (but let’s not get bogged down with that now).

The IMF is currently lending Greece €30bn (about $39bn) towards the combined EU-IMF bail-out package for the troubled nation. This is just under 32 times its quota. It is, for what it’s worth (a lot), the biggest IMF bailout in the Fund’s 65 year history. The previous record was held by Korea which borrowed 20 times its quota in 1998. (more)