European Monetary Fund (ELF)

In view of the difficulties encountered by EU member states, particularly in the wake of the subprime crisis – Iceland, a member of the European Economic Area, had to be rescued from national bankruptcy by the International Monetary Fund; Greece could only be saved from national bankruptcy in the spring of 2010 with the help of euro area members and the International Monetary Fund – it was proposed that a body similar to the International Monetary Fund be set up for Europe, perhaps initially for the euro area and then for the EU as a whole. – The advantage is seen in the fact that – unlike the EU Commission – the ELF could seriously threaten with financial sanctions (could impose financial sanctions) and thus force overdue structural reforms on problem members. The International Monetary Fund has always withdrawn its financial assistance regardless of the consequences when governments refuse to implement prescribed economic reforms. The ELF should be able to take a similarly ruthless approach. With the ELF, the EU would give itself clear rules for the management of a crisis. Everyone on the financial markets would know what to expect. This would provide far better protection against speculative attacks than hastily compiled aid pacts for crisis states. – On the other hand, the EU treaty clearly stipulates that each country is liable for its own debts. For debtor states, the treaty provides for an excessive deficit procedure, which must be strictly implemented. Critics see the EMU as the disguised start of an inter-European fiscal equalization scheme. This would be very expensive because it would create the wrong incentives, and the deficit countries would hardly change their behavior in reliance on help from the community (moral hazard problem). This is because they could rely on the fact that there would be a pool of money from which they could draw in case of difficulties. Ultimately, taxpayers in countries with budgetary discipline would then have to answer for other nations living beyond their means. In addition to economic damage, this could also have devastating effects on popular support for the EU (“Europe – not like this!”), especially if the bailout becomes a question of political blackmail (potential of national blackmailing) and the willingness to use violence on the streets (marches, riots and general strikes in heavily indebted Greece in 2010 gave a foretaste). – Obviously, therefore, there is no need for a new authority, but for strict compliance with the Stability and Growth Pact. Otherwise, the danger is too great that all dams will burst for debt countries in the euro zone. Moreover, under constitutional law, the EMF would be another marshalling yard where the executive can set the course without control by the legislature. The fact that the German gold reserves managed by the Deutsche Bundesbank would even be transferred to an EMF points unmistakably to a joint burden-sharing arrangement that was expressly ruled out in the EU Treaty. – To be sure, many see the European Monetary Fund as essentially already established in the creation of the European Stability Mechanism. – See fear, perverse, purchases, central banking, bail-out, blame game, ClubMed, deficit-financing ban, Eurobonds, common, European Financial Stabilization Facility, European Monetary Union, fundamental error, ECB fall from grace, gold reserves, German, Greek crisis, peer pressure, Helleno swarming, Icelandic bank trap, last-resort provision, wage policy, coordinated, moral hazard, policy clamp, policy default, bailout, risk takers, final, feedback mechanism, shadow state, seven percent limit, solidarity, financial, blocked account, government debt, effects, stability and growth pact, transfer union, redistribution, central bank-induced, wealth levy, debt incentive, contract compliance, growth-debt fact, historical, economic government, European, zombie bank, forced expropriation.. – Cf. Monthly Report of the Deutsche Bundesbank of November 2010, pp. 11 f. (crisis resolution mechanisms must be based on credible consolidation efforts in debtor countries), Monthly Report of the Deutsche Bundesbank of August 2013, pp. 71 ff. (new decisions on deficit procedures).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/