In the past few days, plans have solidified
for a new European version
of the International Monetary Fund. Advocates, which include French and German politicians, say the institution could
save the Eurozone from the crisis created
by Greece's debt woes. But is the new
institution necessary, and would it really solve the problems at hand?
In short, not everyone is convinced that conjuring up a massive international organization out of
nowhere is wise.
- The Key
Facts Backed by Germany and France, the EMF would be an "IMF style
backstop for Euro zone members," explains Business Insider's Gregory
White. "[It] would function by allowing troubled states to roll over
the debt to the EMF, which would then distribute EMF debt to the
sovereign debt investors. Details beyond this are scarce at the
moment." He mentions a few problems with the proposal, including that
it is not backed by the European Central Bank.
- European Central
Bank Opposition Maybe Not an Issue "Even if it could, I am not sure if
the ECB would want to block Germany's initiative [regarding the EMF],"
writes Financial Times' Ralph Atkins.
The ECB wants to encourage fiscal discipline rather than substitutes
for it, but Atkins thinks not all at the ECB may be opposed to the new
institution, and that "the devil will be in the details."
EMF Wouldn't be the IMF "It cannot be overstated how much European
officials fear an IMF bail-out of Greece or other countries," writes
the BBC's Gavin Hewitt.
"It would not just be a humiliation; it would be regarded as a verdict
of no-confidence in the eurozone." Of course, he acknolwedges, treaties
are tricky, and creating an EMF would be controversial: some think a
"ready-made bail-out facility ... might encourage irresponsibility."
- Long-term Necessity Giancarlo Corsetti and Harold James
argue in the Financial Times that the Greek crisis stemmed partly from
problems in the European system as a whole, and that the EMF might fix
them without problems of moral hazard and without the political
wrangling that usually characterizes "support operations." Though it
may be impossible to create right now, "in the long run, Europe needs
something like an EMF." Meanwhile, Daniel Gros and Thomas Mayer
argue in The Eonomist that while one of the first problems of the
Eurozone may be fiscal irresponsibility, the second is "failure to
allow for an orderly sovereign default." The EMF would address this
- Really? The Economist
invited a number of experts to weigh in, and they weren't convinced.
One called the proposal "reinvent[ing] the wheel," given that the IMF
already exists. Economist Tyler Cowen also expressed skepticism that
the new institution will solve the problems its proponents say it will.
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