German chancellor supports European Monetary Fund idea

German chancellor supports European Monetary Fund idea

France appears to be surprised by the speed of the proposal: NYT

By MALMINDERJIT SINGH


GERMAN Chancellor Angela Merkel announced her backing on Monday for a European Monetary Fund (EMF) proposal to enhance inter-euro zone economic cooperation.
The idea for the EMF was mooted by German Finance Minister Wolfgang Schaeuble on Saturday as a rescue fund, such as the International Monetary Fund (IMF), to help member countries better deal with a future economic crisis.
Speaking to members of the foreign press association, Ms Merkel said that the euro zone’s “instruments are not sufficient” and it therefore “must be able to respond to the challenges of the moment”, reported Bloomberg. The European Commission, the executive agency of the European Union (EU), quickly endorsed the idea.
“The commission is ready to propose such a European instrument for assistance, which would require the support of all euro-area member states,” Amadeu Altafaj Tardio, a spokesman for the commission, told reporters in Brussels. “Things are moving very quickly.”
Finance ministers will discuss the plan at their regular meeting on Monday. Germany has usually resisted providing assistance to countries that get into fiscal trouble but German leaders have concluded that more cooperation is preferable to intervention by the IMF, reported The New York Times.
Yeo Lay Hwee, director of the EU Centre in Singapore and senior research fellow at the Singapore Institute of International Affairs, told BT: “This move to create an EMF makes one wonder about the role of the IMF and if it is still relevant in global financial governance. Clearly, the IMF reforms need to be taken more seriously.”
Dr Yeo, however, cautioned against speculation surrounding the EMF as it is still only an idea and no details are yet available as to its form and function. As Ms Merkel herself has indicated, the creation of an EMF may require treaty changes, which may be more difficult than imagined.
However, the EU’s Lisbon treaty, which came into force on Dec 1, does not allow for bailing out eurozone countries, but it does permit aid to EU members outside the currency area.
“I think the idea (of a European Monetary Fund) is a good one. Without changing the treaty, it cannot be done. . . If the European Union is to be capable of taking action, it will run into such questions. The EU treaty will not be the end of history,” she said.
According to The New York Times, although French officials appeared to be surprised by the speed of the proposal, they supported it in principle.
Greek Prime Minister George Papandreou also announced on Monday that his country will support the idea of the rescue fund, but pointed out that Greece did not require such assistance from the EU at present.
Speaking during his tour of the United States, which involves meetings with President Barack Obama and Secretary of State Hillary Clinton, Mr Papandreou said his recent discussions with Ms Merkel and French President Nicolas Sarkozy showed that “there is a will for creating some ad hoc mechanism” that would help the country borrow at reasonable costs.
Reuben Wong, assistant professor of political science at the National University of Singapore, told BT that the euro bloc will not allow Greece to fail.
“Should Greece fail, the political fallout will be too damaging for the euro area. President Sarkozy has already announced that France must support the rescue of Greece, which is a major European country and an economy that cannot be ignored,” Dr Wong said.
It is unlikely that the fund would be in place in time to help Greece through its debt crisis, but it could help tackle any similar crises that arose in other heavily indebted EU states, Reuters reported.
But European Central Bank Executive Board member Juergen Stark fiercely criticised the idea, which he said would break European rules, penalise countries with solid finances and encourage wayward spending. Such a fund “would become very expensive, set the wrong incentives and burden (those) countries with more solid public finances”, he wrote in German newspaper Handelsblatt.
There were also concerns about the impact of the EMF on open trade.
“Although the structure of the EMF remains to be seen, we must ask if this will lead to more closed-bloc politics. While regional integration will be deepened, the EU must not stop engaging other regions,” said Dr Yeo.
Meanwhile, the European Commission said it was ready to propose a rescue fund for the 16 countries using the euro by the end of June, and would discuss it for the first time on Tuesday, but noted that it was too early to say whether the fund would be just a financial instrument or a new institutional body with its own staff and budget.