Are We About to See a “European Monetary Fund?”
by Don Quijones, Wolf Street:
There’s an air of furtive desperation about the proceedings.
As debates rage in Europe over whether or not to take a two-speed or multi-speed approach to post-Brexit integration, Germany rekindled interest in the creation of a European Monetary Fund.
Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble both want to upgrade the grossly unaccountable Luxembourg-based European Stability Mechanism (ESM) into an IMF-style rescue fund that will “be granted the authority to monitor the finances of all eurozone countries,” reports Der Tagesspiegel.
EU Monetary Commissioner (and former French finance minister) Pierre Moscovici is against it, for a simple reason: monitoring budgetary policy in the euro area is, for the moment, the responsibility of the EU Commission.
This is not the first time the idea of a European Monetary Fund has been explored. Ever since the Eurozone’s sovereign debt crisis threatened to rip Europe’s fragile union apart, rumors have periodically surfaced about the possible creation of a fund capable of taking over the IMF’s role as a major source of emergency funding. In 2010 The Economist magazine organized a roundtable debate on the issue, with Daniel Gros, of the Centre for European Policy Studies and Thomas Mayer, then chief economist of Deutsche Bank, both singing its praises:
The EMF could be run along similar governance lines to the IMF, by having a professional staff remote from direct political influence and a board with representatives from euro-area countries. Just as the existing fund does, the EMF would conduct regular and broad economic surveillance of member countries. But its main role would be to design, monitor and fund assistance programmes for euro-area countries in difficulties, just as the IMF does on a global scale.
Creating a European Monetary Fund would also be an important statement of intent. If Europe’s core countries are truly set on taking the EU project to a whole new level, such as by pursuing the creation of an EU army, an EU border force (with full powers), fiscal union and ultimately political union, some form of burden sharing will ultimately be necessary. The establishment of a fully operational EMF could be an important move in that direction.
There’s an air of furtive desperation about the proceedings. The Eurozone is clearly closer to the edge today than it’s been since 2011, when, to keep the project alive, European authorities toppled the elected governments of two Eurozone members, Italy and Greece. Those two countries are now in direr straits than they were back then.
If it’s to remain in the Eurozone at all (an “if” that grows bigger by the day), Greece will soon need a fresh round of bailout funds. But the IMF continues to insist on some form of debt forgiveness as a prerequisite for a fourth bailout — something Schäuble said won’t happen. If the EU launches its own fund of funds, it should help to dispel any market jitters resulting from an IMF retreat from the Greek bailout.
Then there’s Italy, whose blossoming banking crisis, unless fully addressed soon, could bring the whole European experiment crashing down. The country’s government has already pledged to spend €20 billion of public funds on bailing out Monte dei Paschi di Siena and a number of mid-size banks, in direct contravention of EU law. And it’s likely to need a lot more than that.
That money will probably end up coming from the European Stability Mechanism (ESM), an institution that was founded on September 27, 2012, as a permanent facility to provide bailouts to countries that are in distress, and whose powers Merkel and Schauble now want to significantly beef up.
The ESM has already disbursed €136 billion of taxpayer funds in loans to Greece, Ireland and Portugal. It currently has an authorized capital limit of €700 billion, though that can be expanded at any time by the Board of Governors. Individual Eurozone member states are “irrevocably and unconditionally” required to cough up the funds.
Because it is an international organization (located in Luxembourg) and not formally classed as an EU institution or agency, the ESM does not have to adhere to rules or restrictions applicable to EU institutions and is not encumbered by any form of democratic accountability.
Article 32 of its foundation treaty, signed by the governments of Eurozone nations, states that “the ESM, its property, funding and assets shall enjoy immunity from every form of judicial process.” According to Article 35 of the same treaty, the “Chairperson of the ESM’s Board of Governors, Governors, alternate Governors, Directors, alternate Directors, as well as the Managing Director and other staff members” shall also be “immune from legal proceedings”.
