Euro zone finance ministers will discuss on Monday ideas for a European Monetary Fund that would eliminate the need to involve the International Monetary Fund or the European Central Bank in future euro zone crises.
The discussion will revolve around expanding the role of the euro zone bailout fund, the European Stability Mechanism (ESM), an idea clearly backed by Germany, France and the European Commission.
The talks in Luxembourg will be part of a broader discussion among finance ministers from the 19 countries sharing the euro on how to better organise the single currency area and integrate it more deeply after Britain leaves the European Union in 2019.
Other ideas include setting up a euro zone budget, appointing a euro zone finance minister and creating a euro zone subgroup in the European Parliament.
“So far, the IMF has always contributed to the ESM rescue programmes in Europe, but a consensus is now growing that it will not play that same role again in a future crisis,” Klaus Regling, the head of the ESM, said in a speech in September. “The ESM could take over that role, as well as other tasks.”
Euro zone officials involved in managing the debt crisis of 2010-2012 said the ECB, which took part in teams overseeing reforms in bailed-out countries, would rather not do that again.
“The outcome of this can only be that we vamp up the existing ESM framework, maybe with new tools, and adapt it to a situation where ECB and IMF are no longer on board,” said one euro zone official, who asked not to be named.
That would leave the ESM and the European Commission to handle whatever new trouble might occur in euro zone economies.
Some officials speculate that, were an EMF to be created, its financial aid could be made conditional on a country observing EU budget rules. Ignoring those helped trigger the debt crisis.
But the division of labour between a future EMF and the European Commission would be tricky. The policy monitoring and economic surveillance the IMF does for its members is clearly assigned to the Commission in EU treaties.
Also, the Commission employs thousands of experts – energy, trade, fiscal policy, pensions, the labour market – needed to design reforms that would be demanded in exchange for loans. Duplicating that expertise would not make sense, officials said.
Other functions that the ESM, and, by extension, the EMF, could take on, are the financial backstop for the euro zone’s Single Resolution Fund for banks and the yet-to-be-agreed European Deposit Insurance Scheme.
The Eurogroup discussion will be the first of several leading to a summit of EU leaders in December and probably throughout the first half of 2018.
Source: Reuters (Reporting By Jan Strupczewski, editing by Larry King)