Are We About to See a “European Monetary Fund?”

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There’s an air of furtive desperation about the proceedings.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

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”.

So gaping is the institution’s lack of accountability that it has even drawn the scorn of Transparency International, which published the initial findings of a scathing report this week that describes the ESM’s democratic control as “patchy” and calls for Brussels to bring it under EU treaties so that “the normal standards of accountability and democratic control finally apply.”

That is unlikely to happen. Germany would much rather have a democratically unaccountable but efficient institution, made in the Bundesbank’s image, tamping down on deficit spending by Eurozone economies, as the European Commission has already shown itself wholly incapable of putting fiduciary concerns before short-term political ones. A fully operational European Monetary Fund would deal a further blow to the fading remnants of national sovereignty in Europe. By Don Quijones.

This time, the ECB is already doing “whatever it takes.” And still. Read…  Euro Breakup Rattles Investors Once Again




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  12 comments for “Are We About to See a “European Monetary Fund?”

  1. cdr
    Mar 9, 2017 at 4:01 pm

    Sounds like a plan. All they have to do is finance it without creating an actual sovereign liability or using cash from the countries that will benefit. Sounds like a job for the ECB and suckers, aka investors and pension plans, who will buy anything. I’d bet on Italy, Spain, Greece, Portugal, or a beauty like France. And the rates wouldn’t have to be all that negative. Sign me up! The first ones in always come out on top.

    Coming next – The Eurozone becomes a bonafide religion and promises eternal salvation for your soul if you put cash in the basket every week.

    • cdr
      Mar 9, 2017 at 4:06 pm

      Draghi the Sin Eater – What’s that worth?

    • MC
      Mar 10, 2017 at 2:04 am

      Won’t find me practicing what I am preaching
      Won’t find me making no sacrifice
      But I can get you a pocketful of miracles
      If you promise to be good, try to be nice

    • Ricardo
      Mar 10, 2017 at 3:10 am

      that is already done….courtesy of the vatican.

  2. d
    Mar 10, 2017 at 4:20 am

    The creation of an EMF wold also be a way of bringing the leftist mafia controlled ECB to heel, as an EMF would also take EU lender of last resort status, from the ECB.

    And EMF would also possibly have the ability to oversee (And curtail) the ECB bond buying program.

    The Mafiosi at the ECB is turning it into a “buy any junk going from my mafiosi masters, with other peoples money” runaway train.

    Somebody need’s to put the brakes on it, fast.

  3. Mel
    Mar 10, 2017 at 8:18 am

    All I can think of is snark. The EU Commission was around when a megabank showed the Greek government how to get into unsustainable debt without breaking its borrowing limits. We know the EMF will do better because it doesn’t exist yet, even though fees are at stake.
    And the EMF could be run along similar governance lines to the IMF, by having a professional staff remote from direct political influence and … a cadre of political influencers totally independent of the professional staff. When do IMF white papers ever match the IMF’s actual dealing?
    And this is proposed by people whose minds understand how Bad Banks will solve problems. What more can I say?

  4. alexaisback
    Mar 10, 2017 at 11:03 am

    having a professional staff remote from direct political influence

    “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”.

    .
    .
    what a joke

  5. Maximus Minimus
    Mar 10, 2017 at 1:25 pm

    The EMF was already in motion during the Greek crisis No.1, until Merkel/Schauble duo realized that it would look like Germany alone whipping Greece into shape. An impossible task, so they hired IMF to do the job.

    • d
      Mar 10, 2017 at 7:22 pm

      “An impossible task, so they hired IMF to do the job.”

      Which has become even more impossible as the Socalist in greece and the leftist at theIMF are ganging up on Germany who simply wants to do in greece what must be done.

      greece and the IMF have a choice. Do what must be done in greece. Or, take greece out of the Euro, against the wishes of the people. As even they realise, a leftist Government in Germany (something the IMF and others have been trying to organize for some time) will still not be allowed by the German people, to give more handouts to greece.

      This EMF talk could also be kickback, against the unrealistic IMF demand’s, for more handouts to greece.

  6. Hkan
    Mar 11, 2017 at 3:14 am

    Anti EU parties across Europe are the first ones to congratulate to the creation of a European Monetary Fund .

    This will speed the process of reshaping EU. Democratic elections is likely to put the anti EU, populist, nazist and right wing parties into power.

    Result. A messy caotic internal political battle.

    Once in power there is no rush to kill EU. The lucky winner again is “Greed”.

  7. AC
    Mar 12, 2017 at 1:13 am

    Next up: EU income tax, and EU IRS ?

    I think that if I was a Eurolander, I’d be extremely displeased with pro-EU politicians. Probably with extreme prejudice.

    • d
      Mar 12, 2017 at 2:12 am

      Next up: EU income tax, and EU IRS.

      Thats not a problem, as long as they repeal/reduce the current national and regional state income tax regimes accordingly.

      However that wont be next, as an EMF dose not complete the banking union. Only complement it, and make it slightly more tenable.

      Full banking union, is a required step, to full “Fiscal Union”.

      Which is why states like Italy fight it, as “Fiscal Union”. Is the end of fully independent national sovereignty.

      Italy could not bail out MDP, or illegally overspend on clandestine state aid, the way it does. In a “Fiscal Union”.

      The multi speed Eu, is about “Fiscal Union”, and so federation, by the back door. IMHO.

      As when there are enough Fiscal union states in the Eur, it will become an Eur state requirement. Under a fiscal union the will be 1 set of blanket financial regulations and laws, and other national laws similar to US federal and state law.

      Europe being a smaller place, the state laws will slowly come into synchronization, as Europol, will not allow this hiding across state lines business, the US does.

      Then the socialist governments in greece and other places, will have a choice. Surrender Sovereignty. Or leave the Eur, which currently requires also leaving the Eu, but perhaps not a “multi speed” Eu.

      One way or another, club-med will conform to the northern Eur states budgetary rules, or leave the Eur, it is simply a matter of time.

      In the current Fiscal environment, the Norther states would quiet happily see Club-med out of the Eur. As it is club-med, that is holding back, the Euro-zone Economy.

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