The IMF will offer a new credit line program to allow sovereigns to "break the chain of contagion."

A new "Precautionary Credit Line" would allow governments with sound financials who have made prior agreements with the IMF to access liquidity of 1000% of a member's quota for 1-2 years. It would also allow them to access up to 500% of their quota in liquidity on a 6-month basis.

The funds would be offered to sovereigns suffering from "exogenous shocks."

Markets and the euro spiked immediately on the news.

There are, however, a few big problems with this new proposal.

First, it is unclear whether the IMF actually has access to the amount of funds that would be necessary to bail out a sovereign like Italy.

Italy currently has $2.2 trillion in gross external debt, far exceeding the IMF's current available resources of about $540 billion. While that would significantly add to the resources the eurozone bailout fund—the European Financial Stability Facility—has available, this still falls short of the estimates for funding necessary to truly stem the crisis. Citi's Willem Buiter recently suggested about €3 trillion ($4 trillion).

This suggests that the IMF might have to rapidly expand its funding resources to act as an effective bulwark against contagion. But that's not likely to happen either.

The United States—which provides the largest percentage (17.7%) of IMF funds of any individual country—will also have to approve the plan. Previous bids to expand the IMF's funding have hit a wall with U.S. opposition, primarily led by the GOP.

This press release from the IMF describes how the new program will work:

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