European Monetary Fund

Much interest has been generated in one possible solution to the crisis in the EMU. This involves the creation of a fund to support the monetary union – an EMF.  Here is FT on the subject..

Taking uncertainty out of regime aims to prevent crises from gathering

By Ralph Atkins in Frankfurt

Published: March 9 2010 02:00 | Last updated: March 9 2010 02:00

Why has Germany suddenly proposed a European Monetary Fund? The turmoil over Greece’s public finances has shown Europe’s monetary union, which today has 16 member states, ill equipped to manage crises. The debt problems of one of the eurozone’s smallest economies have threatened the stability of the entire region because it was unclear what might happen in a worst case…

In conclusion they ask

Has Germany gone soft? Possibly. A big worry of some conservative policymakers is that an EMF would undermine the effectiveness of fiscal rules, which set limits on fiscal deficits, and that procedures for dealing with violators, as well as the eurozone’s “no bail-out clause”, which prevents collective liability for debts incurred by a member. But arguably an EMF would, in fact, toughen the environment for countries violating the rules. Today Athens can more or less assume that other countries would help out if it came close to default, because of the havoc that would be wreaked across the eurozone if they did not. An EMF would allow an orderly default, so there would be less chance of a comfortable bail-out. Will this solve the crisis in Greece? No, the debate on an EMF has only just begun and it could be years before such an institution is created. Greece’s difficulties will have to be dealt with under the current, uncertain, regime. (link to article)

Karl Whelan in Irish Economy is on to it too

There are lots of stories in today’s press about the German-backed proposal to introduce a new European Monetary Fund to help out EU states in difficulty. Setting up the fund would require a new treaty, which would take a long time. So, on the face of it, this isn’t about helping out Greece, though it could turn out that Greece becomes the “test case” for how an EMF would operate. (link to article)

This discussion is sure to run and run.  Pity there is less interest in examining the Marshall Plan 2 solution which is a quicker cleaner fix.