ED Balls, the shadow chancellor, yesterday said the IMF should not be asked to prop up countries such as Italy and Spain, arguing the European Central Bank should support them instead.
His comments were interpreted as a sign that Labour could join with Tory backbenchers in voting against an increase in Britain’s contributions to the IMF.
Balls hit out at Germany for preventing the ECB from buying up unlimited quantities of Italian and Spanish debt, arguing this was “the proper role a central bank should play”.
He said: “If IMF money were going in and taking over – playing the role that the central bank should be playing – then the IMF money would be making things worse not better.
“If Osborne thinks the IMF can come in and do what the ECB should be doing then that’s massively counterproductive.”
Balls said he supported IMF contributions to the Greek and Irish bailouts but that the “contagion spreading to Italy and Spain” was a matter for the ECB.
If Labour were to ally itself with Conservative backbenchers over a hike in IMF contributions then it could inflict a devastating defeat on the government.