Friday

3rd Feb 2023

European Monetary Fund proposal to be ready by June

  • Greece's current crisis has increased talk on the need for greater euro area economic co-operation (Photo: European Commission)

The European Commission has re-affirmed its willingness to come forward with a proposal for a European Monetary Fund, opening a Pandora's Box of questions regarding its potential design.

"The commission is ready to propose such a European instrument for assistance, which would require the support of all euro area member states," the commission's economy spokesman, Amadeu Altafaj Tardio, said during a regular news conference on Monday (8 March) in Brussels.

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The college of 27 commissioners is set to have their first discussion on a potential European fund at their weekly meeting being held in Strasbourg this Tuesday.

Mr Tardio said the commission would also come forward with plans for "re-inforced economic policy co-ordination and country surveillance" at the same time as the fund proposal, and that this would be during the lifetime of the Spanish EU presidency which expires at the end of June.

The comments, which mirror those made by EU economy commissioner Olli Rehn in Monday's edition of the Financial Times Deutschland, add to a growing discussion on the need for a eurozone emergency funding mechanism as doubts over Greece's economy highlight the euro area's current inability to help states at risk from a possible default.

They also come hot on the heels of a suggestion by German finance minister Wolfgang Schauble for a European IMF-style fund over the weekend, although Mr Tardio insisted there was no "issue of ownership of possible useful ideas".

Speaking to Germany's Welt am Sonntag newspaper, Mr Schauble said he would "present proposals soon" for an institution that would protect the "internal stability of the eurozone".

Officials caution that Mr Schauble's sights are focused on the medium-to-long-term however. "In Germany, the plans are on an ideas level," one EU diplomat told this website.

While not formally on the agenda of eurozone and EU finance minister meetings next week, it is likely that plans for a potential European fund will at least be discussed on the sidelines of the two gatherings, with a large array of questions still to be explored.

One concerns the legal basis for a new funding institution or mechanism, with the hugely drawn-out Lisbon Treaty ratification process leaving little appetite for further treaty changes in national capitals.

Some analysts suggest it may be inevitable however. Writing in a blog (link: http://blogs.euobserver.com/mujagic/2010/03/08/saved-by-the-greeks/) on Monday, Edin Mujagic, a monetary economist at Euro Currency Research in Utrecht, pointed to a number of constitutional difficulties in setting up a European fund. "At the very least, it would mean that the Treaty on the European Union would have to be amended," he wrote.

Other questions include whether eurozone states would contribute to the fund's financing, with commission officials insisting nothing has been ruled in or out at this stage. Any new body is unlikely to be up and running in time to support Greece with its current predicament.

A suggestion by the Socialist group in the European Parliament last week called for the establishment of a 'trustee fund' by euro area member states, capable of borrowing on international markets at reasonable rates.

Media reports suggest German plans for a European fund would come as part of a wider programme for greater euro area economic co-ordination. This could include the suspension of EU subsidies, known as cohesion funds, to countries that fail to observe fiscal discipline, a move unlikely to find favour in a number of capitals.

Doubts also exist over the potential knock-on effects for other international institutions, with EU officials insisting that a European support mechanism would not compete directly with the International Monetary Fund. "We've had this crisis in Greece and want to make improvements in light of what we have learned from that," Mr Tardio said.

"There is clear will within the euro-area member states and the European Central Bank to learn lessons from what happened and to take measures," he added.

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