Some G20 countries soften stance on Europe: sources

MILAN/MEXICO CITY (Reuters) - Some Group of 20 members are softening their stance towards Europe's handling of the debt crisis and a push for extra rescue funds, G20 sources said on Friday, although hardliners may still scupper an early deal to boost the International Monetary Fund's war chest.

Countries including emerging market powers Brazil and China are keen to pursue a two-track plan pushed by G20 president Mexico to work on additional IMF funding simultaneously with extra steps from Europe, an official from a G20 nation told Reuters.

"There was a much more cooperative sentiment between G20 countries than in recent meetings," the source said of last week's discussions between G20 deputies in Mexico City.

"Some emerging countries are more open to consider contributions to increase IMF resources in parallel with euro zone efforts, so they are open to make commitments to increase IMF resources in the next few weeks."

G20 officials are working towards a possible deal at a meeting of the bloc's finance ministers and central bank governors in Mexico City on February 25-26.

Mexican central bank governor Agustin Carstens said consensus was building on boosting IMF resources to help European countries and others that need aid.

But the February deadline may prove ambitious, given the United States' insistence that Europe boost its own crisis shield further before any pledges to the IMF -- which estimates it needs $600 billion more to limit the fallout.

"Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall," Treasury Secretary Timothy Geithner said at the World Economic Forum in Davos, Switzerland.

"If Europe is able and willing to do that, we believe the IMF is ready to play a constructive role."

STAND-OFF FEARS

Canada is also sticking to a tough public stance, although a G20 official from another country said it was becoming more conciliatory, along with Japan.

"Canada and Japan are more flexible than in the past," the second official said. "It could be a bit more difficult with the USA, although they too have softened their position, but it's still early in the game."

Europe, for its part, supports the two-track approach, but officials are concerned that German reluctance so far to back increased funding for the euro zone's own rescue funds may fuel a stand-off at the G20.

Germany has insisted that the safety net should not exceed 500 billion euros, but officials close to the G20 talks estimate that a further 230 billion to 250 billion euros is needed.

"It is important that we should not let this be locked between the Americans and the Germans, or the IMF and the Germans, so that nobody would get any pretext or excuse to not do their part," a senior euro zone official said.

European Union leaders will discuss increasing the firepower of the bloc's permanent rescue fund, the European Stability Mechanism (ESM), on March 1-2, just days after the G20 meeting, with the timing creating an extra difficulty for policymakers.

"If the parallel approach wins inside the G20, a deal on increasing IMF resources could be clinched by the G20 meeting in February," the first G20 source said.

"Otherwise, the G20 will work on reaching a deal by next April in Washington, after an increase of ESM firepower is signed in March among euro zone countries."

Countries keen on the parallel approach are Brazil, Australia, Japan, Indonesia, China, Indonesia and Korea, the source said.

A senior Brazilian government official confirmed Brazil was keen to push the two aims simultaneously, but said a commitment to a bigger ESM would definitely smooth the way.

"If the Europeans increase (funding to) the ESM then they increase the chances of additional resources to the IMF in support," he said.

(Additional reporting by Alonso Soto in Brasilia, Paul Carrel in Davos and Jan Strupczewski in Brussels; Writing by Krista Hughes; Editing by Andrea Evans)