Friday

19th Aug 2022

IMF tells EU: Stop 'unproductive debate' and integrate 'now'

The International Monetary Fund has bluntly warned the European Union it must put an end to its "unproductive debate" over debt restructuring and, in an unprecedented outside intervention in the construction of the European Union, told the bloc it must integrate faster and more deeply in order to stop a global disaster.

Using much of the same censorious language about the EU that the EU has used about Greece, the international lender told the bloc to act "now" and that its handling of the situation "needs attention".

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

While "courageous attempts" have been made by the eurozone to address the crisis, "failure to undertake decisive action could rapidly spread the tensions to the core of the euro area and result in large global spillovers," read a report of the Fund's review mission investigating the effectiveness of eurozone policies, published on Monday (20 June).

Saying Europe is at a "crossroads", the IMF's acting director, John Lipsky, in Luxembourg for a meeting with EU finance ministers, declared: "The euro area needs to strengthen economic governance and may need to be more intrusive in terms of national structures."

Warning that all the euro area's efforts so far, including the so-called six-pack delivering economic governance, the EU semester system and the Euro Plus Pact while welcome, are not enough to prevent "global spillovers" from the crisis, the IMF said that still "more economic and financial integration" and EU intervention in national economies is necessary.

The Fund's European director, Antonio Borges, even went so far as to compare the unification process unfavourably to that which happened in the United States over a century ago.

"We really believe that many of the current problems result from incomplete integration," he told reporters upon presentation of the report.

"In the process of developing monetary union like the United States, which is a fully integrated monetary union, you have obstacles that magnify the problem," he said.

Specifically, the report mentioned that "without political union" and fiscal transfers, "stronger governance of the euro area is indispensable."

The report also demanded deeper integration of labour markets, the flow of goods and services markets and, crucially, capital.

The IMF's review of eurozone policies, parallel to the review the EU-IMF-ECB troika mounts of bail-out countries and the recommendations the European Commission has recently issued regarding EU member state economic policies, is part of the Fund's new "toolkit" developed in the wake of the global financial crisis.

The process sees IMF missions speak to authorities from each of the world's five leading economic areas and asks them the impact of the policies of other leading economies on their own. The result of these consultations is then compiled in a mission report.

The IMF's EU report also said the ECB should proceed "gradually" and "cautiously" in hiking interest rates so as to "limit stress" to the eurozone periphery.

The report went on to say that the EU needs to announce what it will do to resolve problems in the banking sector before stress test results are announced, adding that preference should be given to market-based solutions, but that "public support may be necessary ... in a manner co-ordinated across the EU."

The IMF called for progress towards common depositor insurance, banking management and crisis prevention, with a European Resolution Authority the "ultimate goal" backed by a deposit guarantee and resolution fund to deliver a "euro area centred backstop for both liquidity and solvency support."

In its sharpest language, the document said: "It will be essential to bring the unproductive debate about debt reprofiling or restructuring to closure quickly."

"Policies to stop contagion from sovereign debt adjustment or re-profiling are at a premium."

Conditions met for German nuclear extension, officials say

Conditions have been met for the German government to allow a temporary lifetime extension of three remaining nuclear reactors, according to the Wall Street Journal, as the country is facing a likely shortage of gas this winter.

News in Brief

  1. China joins Russian military exercises in Vostok
  2. Ukraine nuclear plant damage would be 'suicide', says UN chief
  3. Denmark to invest €5.5bn in new warships
  4. German economy stagnates, finance ministry says
  5. Syria received stolen grain, says Ukraine envoy
  6. Truss still leads in next UK PM polling
  7. UN chief meets Zelensky and Erdogan over grain exports
  8. Fighting stalls ahead of UN visit, Ukraine says

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic prime ministers: “We will deepen co-operation on defence”
  2. EFBWW – EFBH – FETBBConstruction workers can check wages and working conditions in 36 countries
  3. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  4. European Centre for Press and Media FreedomEuropean Anti-SLAPP Conference 2022
  5. Nordic Council of MinistersNordic ministers write to EU about new food labelling
  6. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis

Latest News

  1. European inflation hits 25-year high, driven by energy spike
  2. No breakthrough in EU-hosted Kosovo/Serbia talks
  3. Letter to the Editor: Rosatom responds on Zaporizhzhia
  4. Could the central Asian 'stan' states turn away from Moscow?
  5. Serbia expects difficult talks with Kosovo at EU meeting
  6. How scary is threat to Ukraine's Zaporizhzhia nuclear plant?
  7. Slovakia's government stares into the abyss
  8. Finland restricts Russian tourist visas

Join EUobserver

Support quality EU news

Join us