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Why Europe needs its own IMF

Financial Times - Mar 8, 2010

Like every good tragedy, the current Greek crisis has its origins in events and decisions long past. In particular, two historical flaws in the European approach to monetary and fiscal management have emerged as threats to European stability. They are not fatal; but they need to be fixed.

The first is the absence of a mechanism to address financial crises that could threaten, via contagion, the whole European market. It is worth recalling that this problem was well understood by the founding fathers of the common currency. The agreements of 1978 that produced the European Monetary System as a comprehensive fixed exchange rate regime also provided for the establishment of a European Monetary Fund within two years. An EMF would play an analogous role to that of the International Monetary Fund in the defunct international fixed exchange rate regime that had been created at Bretton Woods. In particular, it would allow countries that were hit by a sudden or unanticipated crisis to draw on its resources, and, like the IMF, would have allowed formal policy conditions to be imposed on countries. The EMF was never realised but is once again under discussion.

Read Full Article from Financial Times

- Posted: 2010-03-08 11:25:09

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